Fighters loyal to the interim government were fighting street to street, slowly advancing into the city, but have been unable to dislodge Qaddafi loyalists defending it, Reuters journalists embedded with the interim government force said.

The city echoed with the sound of heavy shelling and gunfire. National Transitional Council interim government fighters said they had seen NATO warplanes above the city on Friday but did not know if they had bombed neighborhoods.

"NATO attacked the city of Sirte last night with more than 30 rockets directed at the city's main hotel and the Tamin building, which consists of more than 90 residential flats," Qaddafi spokesman Moussa Ibrahim said in a call from a satellite phone to the Reuters office in Tunis.

"The result is more than 354 dead and 89 still missing and almost 700 injured in one night," he added. The Tamin building is a landmark building in the center of Sirte, named after the Tamin insurance company.

Reuters was unable to verify Ibrahim's account of the incident. Qaddafi-held areas have been cut off from communication since the fall of Tripoli.

NATO spokesman Col. Roland Levoie said: "We are aware of these allegations. It is not the first time such allegations have been made. Most often, they are revealed to be unfounded or inconclusive."

Ibrahim said Qaddafi was personally directing loyalist fighters who are fending off provisional government forces at his remaining strongholds. Those include Sirte on the coast, Bani Walid southeast of Tripoli and Sabha in the deep Sahara.

Ibrahim said pro-Qaddafi forces had been stockpiling weapons and planning for a drawn-out war.

Fighters closing in on Sirte from the east captured a nearby town on Saturday only to have their advance stopped in its tracks by fierce resistance from loyalist forces.

NTC fighters seized Herawa, a small town 60 km from Sirte. They danced in the streets singing "Qaddafi, we will burn you" and ripped down his posters, stamping on his face in the dirt.

But difficulties came as troops started setting up base in a mosque on the edge of the town. Pro-Qaddafi forces in Sirte fired rockets at the domed white building and heavy shelling scattered the fighters.

"Answer me! Answer me!" an NTC fighter sobbed as he cradled the body of his friend, killed by shrapnel wounds to his head. The fighters scrapped a plan to advance further into Sirte, to reinforce other interim government forces who have entered Sirte from the opposite direction.

Herawa's civilian population, in the low thousands, was nowhere to be seen as NATO jets roared overhead.

In Bani Walid, fighting resumed Saturday after diehard loyalists dug in there shelled a key checkpoint controlled by NTC forces on its northern outskirts.

A Reuters correspondent outside Bani Walid watched a column of NTC pickup trucks mounted with anti-aircraft machine guns and fresh ammunition rushing back into the interior desert town as dusk fell.

The day before, NTC fighters beat an embarrassing retreat from Bani Walid under withering heavy weapons fire from loyalists.

"There is heavy fighting. We are fighting back with mortars. The Qaddafi militiamen provoked us (by shelling the checkpoint). And we went into the city to fight them," said NTC fighter Younis Mohamed.