Libyan strongman Muammar Gaddafi today unleashed bombing raids, special forces and heavy armour in a desperate bid to break the siege of his capital Tripoli, fearing a US and NATO military intervention.

As US warships and fighters massed off the Libyan coastline and the threat of a 'no-fly zone' appeared imminent, Gaddafi threw in his ultra loyal elite Khamis brigade and mercenary militiamen, to retake the towns closest to the capital.

Apparently wary of threats held out by western nations, including British Prime Minister David Cameron who warned him of military action, Gaddafi launched a six-pronged attack to break encirclement of his capital, but the rebels bolstered by defections from the army repelled his attacks.

The rebels used newly acquired tanks, mortars and machine guns to push back the attack on al-Zawiya town, 50 kms west of Tripoli and six other outlying cities, giving a new dimension to the rebellion, in which atleast 1,000 people have been killed, al Jazeera reported.

Tens of thousands of defections from the ranks of the military and militiamen were reported by the channel which said that reports of US and NATO warships and fighters massing in the Mediterranean Sea could trigger a further switchover from the army.

The battle for al-Zawiya town was intense and went on for six hours, but there was no word on casualties, the Arab channel reported.

Reports also said that Gaddafi's air force jets bombed ammunition depots in the eastern part of the country which has totally switched sides to his opposition.

"We repulsed the attack. We damaged tanks and the mercenaries and the army troops fled after that," al Jazeera quoted local fighters as saying.

The opposition forces, now labelling themselves as the 'New Libyan Army', are growing by hours due to defections.

But opposition commanders said it was impossible to say how many of Libya's 76,000 strong army has defected. They said they have now access to large stores of weapons from looted military stockpiles or smuggled across the border.

The channel said rebel soldiers had become much more organised and had set up a unified military council in the East.

"Small groups of rebel soldiers have volunteered to infiltrate into Tripoli to cause havoc and bolster pro-democracy groups," the channel said.

While his 41-year-old regime appeared to be crumbling on all sides, the Libyan ruler was still steadfast in denial.

Speaking to three western media groups, including BBC and ABC, Gaddafi laughed off suggestions that he would leave strife-torn Libya, insisting that "all my people love me".

But the stiffening of attitude by the US and NATO became clear as Cameron, speaking in the House of Commons, said "a no-fly zone" can be imposed anytime and his troops could be involved in peacekeeping in the country.

The British prime minister told the Commons that the UK and its allies were considering using fighter jets to impose a 'no-fly zone' over Libya to patrol and shoot down Libyan aircrafts ordered to attack protesters.

The British media said the warning came amid growing concerns that the crumbling regime could use chemical weapons against its own people.

ABC News said that the amphibious USS Kearsarge armed with helicopter gunships, Harrier sea fighters and marines had set sail for the Mediterranean, in a move described by Pentagon as "tools to provide full range of options" to US leaders.

The channel also said that giant carrier USS Enterprise had also been kept on high standby alert in the Red Sea. These lethal warships could be used to enforce a 'no-fly zone' over Libya.

US officials were tight lipped about the buildup of forces in the region, merely saying it was "repositioning of forces" to provide options to President Barack Obama.

But the Libyan opposition forces denied that they had called for international intervention.

Defected interior minister told al Jazeera that welcoming foreign troops was out of question.

Stepping up pressure on the Libyan rulers, the US today announced to freeze assets of the Gaddafi regime.

"As of today, at least USD 30 billion in government of Libya assets under US jurisdiction have been blocked. This is the largest blocking under any sanctions program ever," David Cohen, the Acting Undersecretary of Treasury for Terrorism and Financial Intelligence, told reporters after announcing the freeze of assets.

The Treasury moves comes days after President Obama slapped sanctions on the Gaddafi regime, which has been allegedly using lethal force against its own people.

Secretary of State Hillary Clinton, in an interview to National Public Radio, underlined the determination of the White House to send a clear message that the cost in Libya "is getting intolerable".

"What we're trying to do is to send a message to those around him that the cost is getting intolerable, that if you want to get out and end the bloodshed, you need to move now. And I think that would be a powerfully delivered message by the Europeans. And also, we are looking at all other options," Clinton said.

"The decision made by NATO at the North Atlantic Council a few days ago was to direct the military command, the supreme commander in Europe, to begin prudent planning. And that runs across a full range of potential options. So there's a lot going on," she said.

The Secretary of State said Gaddafi is increasingly losing control over his country and now he appears to be in control of a small part of the capital Tripoli.

"The situation for Gaddafi is worsening... He is in control of a smaller part of the country, really now probably only a part of Tripoli. But he still has allies who are not yet turning against him, and we are trying to send very clear messages that that needs to happen," Clinton told the BBC News in an interview.

Clinton said the US and its international partners are looking at all forms of action and nothing is off the table.

"We want to be prepared in the event that some other steps is necessary," the top US diplomat said.