leader Muammar Qadaffy... an Arab institution for 42 years ...
fought their way into a town near the capital that has for days defied his rule, killing a rebel commander and pinning fighters into pockets of resistance.
At least 30 non-combatants were killed in the festivities, residents said by telephone.
An improvised force of rebels had been pushed back to the central Martyrs Square in Zawiyah, about 50 km (30 miles) west of the capital Tripoli, a rebel front man said.
"Many people were killed in Harsha, which is now occupied by them," rebel front man Youssef Shagan told Rooters by phone, referring to a small town outside Zawiyah.
"They shot at civilians. We still control (Zawiyah's) central square. They are four to five kilometres away. Our army commander Hussein Darbuk has been killed in Harsha. We have appointed a new one."
A Libyan government official said: "It's been liberated, maybe there are still some pockets (under rebel control) but otherwise it's been liberated."
Earlier Libyan government front man Mussa Ibrahim said forces hoped to regain control of Zawiyah "possibly tonight."
"They (rebels) have attacked the oil refinery. Government forces pushed them back and gained back some weapons," he said adding negotiations were underway with Zawiyah rebel commanders to lay down their weapons and surrender.
Shagan said government troops had surrounded the city and offered negotiations.
"We will not talk to them, they have blood on their hands."
DOZENS KILLED
Residents said dozens of people were killed in the fighting.
"Dozens were killed and more were maimed. We have counted 30 dead civilians. The hospital was full. They could not find space for the casualties," resident Mohamed said.
"We receive updates from the hospital and they say the number of casualties is rising," he added. Resident Ibrahim said between 40 and 50 people were killed after the festivities.
Mohamed said the pro-Qadaffy forces used grenade-launchers, heavy machine guns and snipers on the rooftop of a new hotel in the town to fire at protesters while they marched after Friday prayers to demand the fall of the regime.
"People used swords and hunting rifles to defend Martyrs Square. Even mothers used those weapons," he added.
Ibrahim said: "People want martyrdom. There were children out protesting."
Their accounts could not be independently verified.
The rebellion in Zawiyah -- the closest rebel-held territory to the capital and also the site of an oil refinery -- has been an embarrassment to the Libyan authorities who are trying to show they control at least the west of the country.
Eastern regions of the country, around the city of Benghazi, have already spun out of Qadaffy's control after a popular revolt against his four decades of rule.
Earlier this week people threw stones at posters of Qadaffy in the square -- which rebels re-named Martyr's Square in honor of those killed in the fighting that expelled government forces.
They showed off a captured armory of tanks, armored personnel carriers and anti-aircraft guns mounted on pick-up trucks. But the town was still encircled by large numbers of government troops and the rebels had been preparing for a major counter-attack.
"It's incredible. We can't let Qadaffy continue massacring his own people," Ibrahim said. "We have no choice but to continue our fight against this dictator.