Libyan rebels said yesterday they had seized a key oil refinery town in some of the heaviest fighting of the rebellion that left “many dead”, a claim promptly denied by a senior government official.

With claim and counter-claim shifting with battle lines in the North African country’s desert sands, Venezuela said Libya had given it a green light to form a peace mission, a move already rejected by the rebels.

The fighting centred on the town of Ras Lanuf, where hundreds of jubilant rebels cheered and fired into the air late yesterday, saying they were in control.

An AFP reporter saw rebels positioned outside the Harouge Oil Operations compound, at the military barracks, police station and at the gates to a nearby residential area.

But in Tripoli the Deputy Foreign minister in Muammar Gaddafi’s government, Khaled Kaaim, said “the governement controls it: in Raslanuf, everything is calm.”

Earlier a government source admitted that Braga, between Ras Lanuf and the rebel headquarters of Benghazi, was in rebel hands, only to be swiftly contradicted by a colleague, who said fighting there was still ongoing.

Heavy explosions and machine-gun fire could be heard in the desert 10 kilometres east of Ras Lanuf, as truckloads of armed insurgents headed in that direction accompanied by ambulances.

“They are firing Grad rockets. I saw four people killed in front of me. A rocket hit them,” said a rebel, who gave his name as Marai.

Meanwhile, state television said earlier Gaddafi forces had wrested control of Zawiyah, 60 kilometres west of Tripoli and the location of a major oil refinery.

But a government official later said “pockets of resistance” remained, and a local politician vehemently denied the TV report and said opposition forces were still in control of the town.

British Sky News journalist Alex Crawford said the town was “under siege” by Col Gaddafi’s army and that residents feared an attack.

“They fear that they are going to be attacked tonight and they are digging in to try to defend themselves,” Mr Crawford said.

In an earlier television report from a hospital in Zawiyah, she said at least three people had died and there were up to 50 people wounded, seven of them critically. Two children were among those hurt.

Mr Crawford said thousands of protesters, mainly unarmed, “were marching towards the military lines when the army opened fire using tanks, weapons. They fired several times, repeatedly at the protesters and they also used machine gun fire.

“A number of the protesters were hit and we’re now in the hospital where a number of them have got bullet wounds to the back. Several ambulances were called and they were fired on as well,” she said.

A doctor treating rebel casualties from fighting in Rasnaluf said there were “many dead and wounded”, particularly from rocket fire, in the assault on the town.

“We saw people dying everywhere,” a rebel volunteer, Abdul Rauf, told AFP on his way back from the front in a bloodstained vehicle.

In another incident at least 17 people were killed yesterday when a huge explosion ripped through a weapons dump outside Benghazi, a doctor said, adding that the cause of the blast was unknown.

Earlier police fired tear gas at around 100 anti-regime protesters demonstrating in the capital. The clashes took place in the Tajoura district after Friday prayers, a witness said, while another said opponents and supporters of the regime traded blows near the capital’s Green Square.

Oil prices soared again because of the unrest. New York’s light sweet crude for April delivery briefly surged past $104 a barrel to the highest level for two and a half years, while world powers watched anxiously, stymied by the need to act in unison against the Libyan strongman.

The European Union warned it could deploy warships to enforce an arms embargo on his country, while urging Tripoli that humanitarian workers be allowed into the country.

Venezuela’s Foreign Minister said the peace mediation mission, already flatly rejected by a spokesman for the rebels, would be made up of “active and influential states of Latin America, Asia and Africa”.

He said it would have the aim of “helping promote national dialogue with the aim of achieving security and stability for the Libyan people”.

Nicolas Maduro, reading from a letter from his Libyan counterpart, said “we authorise you to take the necessary measures to select the members and coordinate their participation in this dialogue.”

The UN refugee agency said yesterday that fewer than 2,000 people had crossed the border into Tunisia on Thursday, compared with between 10,000 and 15,000 on previous days, citing the presence of heavily armed Gaddafi forces.