Libya's new regime fighters retreated Thursday under heavy fire from Moamer Kadhafi diehards in his hometown Sirte as their leaders backtracked on an announcement they had captured one of his sons.
The fighters, who had been hoping to mop up the last pockets of resistance in two northwestern residential districts, withdrew to the police headquarters they had captured on Tuesday, said an AFP reporter.
Commanders of the forces loyal to the National Transitional Council (NTC) said the Kadhafi diehards were cornered within about two square kilometres (500 acres) of the Mediterranean city.
As heavy artillery fire was heard in the city's west and thick black smoke rose over the waterfront to the north, ambulances with sirens ablaze ferried the many wounded out for treatment.
Four pro-NTC fighters were killed, including two by friendly fire, and another 40 were hurt, mostly by sniper fire, said Rawad Friwan, a surgeon at a field hospital on Sirte's western outskirts.
"Earlier in the day, we had been engaged in street fighting, but we have stopped. The pro-Kadhafi fighters have been firing rockets, mortars and bombs at us," said Fayisal Ahmed Bringo, a new regime fighter.
"There are still 500 pro-Kadhafi fighters in Sirte and our forces today arrested 15" of them, he said.
The intensity of fighting eased later to machinegun and occasional rocket fire, mainly from the forces of the new regime, as they waited for further orders.
"The Kadhafi people are squeezed in an area of around two square kilometres (about 500 acres)," NTC field commander Beloun al-Shaari of the Martyrs of the Mountains Brigade told AFP.
"Our strategy is to close in inch by inch daily.
"Around 800 to 1,000 people are still in the area. Many of them are civilians which is making it a bit difficult for us to launch a big attack, but God willing, by tomorrow we should be in control of that area," said Shaari.
Sirte is a key goal for Libya's new leaders who have said they will not proclaim the country's liberation and begin preparing for the transition to an elected government until the city has fallen.
The new regime began its siege of Sirte on September 15 before launching what it termed a "final assault" last Friday that has seen at least 95 of its troops killed and hundreds wounded, according to medics.
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Its forces have encircled Kadhafi loyalists after taking control of Sirte's waterfront, its showpiece conference centre, university, hospital and main square.
A top adviser of NTC chief Mustafa Abdel Jalil meanwhile backtracked on his announcement that they had captured Kadhafi's feared son and national security chief Mutassim in Sirte, after it was denied by military commanders in the city.
"There was some confusion about the reports of Mutassim's capture," Abdelkarim Bizama said. "As soon as we have confirmation, there will be an official announcement of his arrest."
Late on Thursday, Bizama had announced: "Mutassim Kadhafi was captured at Sirte and was transferred to Benghazi," Libya's second-largest city where significant parts of the new leadership remain based.
The announcement sparked celebratory gunfire in both Tripoli and the anti-Kadhafi stronghold of Misrata, Libya's third city, which withstood a devastating siege by his forces.
New regime fighters said they did capture the Kadhafi regime's top cleric as he attempted to flee Sirte on Wednesday with his beard shaved off.
Khaled Tantoosh, who served as Libya's mufti under Kadhafi, made broadcasts in support of the fugitive ex-strongman through the long uprising that ended his 42-year rule.
NATO said its aircraft hit two military vehicles in Sirte on Wednesday and one more in the other remaining bastion of Kadhafi forces -- the desert oasis of Bani Walid, southeast of Tripoli.
NTC oil minister Ali Tarhuni vowed Libya would investigate "every penny" of suspicious oil contracts signed under Kadhafi's regime, which was responsible for what he called "unbelievable" corruption.
"There will be specialised committees that will look into all these contracts and agreements starting with the oil sector," Tarhuni said, without giving details on contracts or companies.
Libya's oil production, which collapsed after the uprising in February, is expected to rise to nearly one million barrels per day by April from the current 400,000, said Nuri Berruien, head of the state-run National Oil Company.
Italian energy company ENI said it has resumed supplies of natural gas through the Greenstream pipeline linking Libya and Italy, following an eight-month suspension due to the conflict.
Berruien, confirmed the supply of "limited quantities" to Italy but said "official" exports would not resume until the end November or early December after levels are agreed.
Elsewhere, the NTC said it signed an agreement with NATO opening up parts of Libya's airspace to commercial flights, despite a UN no-fly zone that cleared the way for air strikes on Kadhafi's war machine.