General Abdel Fatah Younes, a former senior official in Moamer Kadhafi's regime who defected to lead rebel forces, has been killed, according to the head of the rebel National Transitional Council.
"With all sadness, I inform you of the passing of Abdel Fatah Younes, the commander-in-chief of our rebel forces," NTC chief Mustafa Abdel Jalil said as fresh explosions shook the centre of the capital, Tripoli.
"The person who carried out the assassination was captured," Abdel Jalil said without elaborating.
Younes was shot and killed by an armed group while he was on his way to Benghazi after he had been called in from the front to answer questions over the military situation, Abdel Jalil said.
He said there would be three days of mourning in Younes's honour.
Rumours circulated in Benghazi throughout Thursday that Younes, known as the number two in Kadhafi's regime prior to his defection in the early days of Libya's revolt, was arrested and killed by rebels but they could not be confirmed by AFP.
"I ask you to refrain from paying attention to the rumours that Kadhafi's forces are trying to spread within our ranks," Abdel Jalil told journalists after a lengthy closed door meeting with NTC members.
Moments after the announcement, two vehicles loaded with an anti-aircraft gun and at least a dozen armed men shooting in the air arrived at Tibesti hotel, where the announcement was made.
A witness said that they later managed to enter the hotel with their weapons but security forces calmed them down and convinced them to leave.
"They shouted 'You killed him,'" in reference to the NTC, he added.
At least three loud explosions shook the centre of Tripoli late Thursday, as Libyan television reported that planes were flying over the Libyan capital, which has been the target of NATO air raids.
Al-Jamahiriya television reported that several "civilian sites" had been bombed by NATO on Thursday.
Libyan rebels seized two localities near the Tunisian border earlier in the day as part of their pre-Ramadan offensive aimed at unseating Kadhafi, an AFP correspondent said.
The first was the town of Al-Ghazaya, some 12 kilometres (eight miles) from the frontier and the second was Umm Al-Far, a hamlet of a few hundred inhabitants 10 kilometres northeast of there.
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The assault on Al-Ghazaya began at around 8:00 am (0600 GMT) in a two-pronged attack from the east and west that appeared to have driven loyalists out, as the town was deserted when they entered.
However, ammunition was found stored in a school and other public buildings in the town.
The rebels then moved on to Umm Al-Far and bombarded it, blowing up a munitions dump. The hamlet fell around 5:00 pm, and rebels, mostly on foot, were moving through the streets to secure them a half hour later.
The capture of Al-Ghazaya, being used as a base by Kadhafi troops to fire rockets onto rebel forces in nearby Nalut town, followed a defiant speech by the Libyan leader that he is ready to "sacrifice" to ensure victory in the civil war.
The early morning assault from the surrounding mountains was part of the offensive by the rebels aimed at marching on Tripoli and toppling Kadhafi.
Initial attacks had begun on Wednesday, a military source told an AFP correspondent in Zintan, in the Nalut region of western Libya.
Before the rebels overran the town, an AFP correspondent saw dozens of army vehicles pulling out in the face of rebel artillery fire from heights overlooking Al-Ghazaya.
The Nafusa mountains have seen some of the fiercest fighting between loyalist troops and rebel forces.
The two sides had fought their way into a stalemate five months after the start of a popular uprising that quickly turned into a civil war.
The Libyan leader controls much of the west and his Tripoli stronghold, while the opposition holds the east from its bastion in Benghazi.
A defiant Kadhafi said late Wednesday he is ready to "sacrifice" to defeat the rebels after they warned the deadline for him to step down and stay in Libya has expired.
"We are not afraid. We will defeat them," Kadhafi said in an audio message, referring to the NATO alliance and the insurgents.
"We will pay the price with our lives, our women and our children. We are ready to sacrifice (ourselves) to defeat the enemy," he added in a message to loyalists in the town of Zaltan, also near the Tunisian border.
Kadhafi's message came after the chief of the NTC said in Benghazi that an offer they had made through the UN that would have allowed the strongman to remain in Libya if he stepped down had lapsed.
Meanwhile, Britain gave a major boost to the rebels by inviting them to take over the Libyan embassy in London, which the Kadhafi regime slammed, while Washington said it was examining a request by the rebels to recognise them.