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Government forces who had for weeks been pinned down by artillery and rocket fire on the eastern edge of Sirte were able to advance several kilometres into the city, capturing the southern district of Bouhadi.
Shells, propelled grenades and anti-aircraft fire lit the sky after sundown. NATO aircraft flew overhead.
In Tripoli, the man convicted of the 1988 bombing of a US-bound airline over the Scottish town of Lockerbie told Reuters in an interview his role had been "exaggerated" and that the truth behind the bombing would emerge soon.
Commanders with the interim government, the National Transitional Council (NTC), said their fighters in Sirte were waging street battles with Gaddafi supporters in a residential area situated 2km from the city centre.
Medical workers at a field hospital near Sirte said four NTC fighters were killed and 39 others were wounded on Monday.
A military spokesman for the NTC told a television channel that Gaddafi's son Mutassim was hiding in the Ibn Sina hospital in Sirte.
"Our revolutionaries (in Sirte) are fighting those who are accomplices of the tyrant in crimes against the Libyan people," Ahmed Bani told Doha-based Libya TV.
"They are a group of killers and mercenaries led by Mutassim Gaddafi who is now in the Ibn Sina hospital in Sirte to avoid being hit, according to newly received information."
A Reuters reporter at a traffic circle in the centre of the Bouhadi district said the NTC forces appeared to be in control, though they said there were isolated pockets where loyalists fighters were still holed up.
"We are surrounding them from all sides. We have orders to call in from all fronts and use all kinds of weapons," said NTC fighter Saeed Hammad.
NTC fighters loaded their pick-up trucks with items taken from houses in the district, including carpets and chairs.
On the way in to Bouhadi, the streets were deserted apart from some burned-out cars and tank shell casings. Billboards which had shown images of Muammar Gaddafi were torn down.
A group of NTC fighters headed out of the city on foot carrying a haul of rocket-propelled grenades, Kalashnikov rifles, boxes of ammunition and pairs of new army boots. They said they found them in the homes of Gaddafi supporters.
A Red Cross convoy delivered oxygen and other urgently needed medical supplies to the Ibn Sina hospital on Monday after an earlier attempt was aborted because of heavy fighting.
"The situation on the ground was very tense with ongoing fighting," said Red Cross delegate Hichem Khadraoui. "Under such conditions, we had to limit ourselves - after obtaining clearances from all the parties concerned - to bringing in the most urgently needed humanitarian aid."
Aid agencies say they are concerned about the welfare of civilians inside Sirte, one of the last pro-Gaddafi bastions left in the country, who are trapped by the fighting and running out of food, water, fuel and medical supplies.
Concerns about the humanitarian crisis have focused on the Ibn Sina hospital. Medical workers who fled Sirte say patients were dying on the operating table because there was no oxygen and no fuel for the hospital's generators.
Medical staff outside Sirte who had treated wounded civilians fleeing the fighting said they had been told the corridors were full of patients and that treatment was being given only to pro-Gaddafi fighters or members of his tribe.
The only person convicted in the Lockerbie bombing, Abdel Basset al-Megrahi, said the facts of the case might be known soon. Convicted in a Scottish court, he was released two years ago on the grounds that he was suffering from terminal cancer.
"The facts (about the Lockerbie bombing) will become clear one day and hopefully in the near future. In a few months from now, you will see new facts that will be announced," he told Reuters Television.
"The West exaggerated my name. Please leave me alone. I only have a few more days, weeks or months."
Al-Megrahi, who had served as an intelligence agent during Gaddafi's rule, denied any role in the human rights abuses committed by the deposed Libyan leader.
"All my work was administrative. I never harmed Libyans," he said." I didn't harm anyone. I've never harmed anyone in my life."
Libyans ended Gaddafi's 42-year rule in August when rebel fighters stormed the capital. Gaddafi and several of his sons are still at large and his supporters hold Sirte and the town of Bani Walid, south of Tripoli.
De facto Prime Minister Mahmoud Jibril said on Monday the NTC would set in motion the process of democratic elections once Sirte was captured, instead of waiting until the whole country is under their control.
The NTC has decided to "announce liberation of the whole country once Sirte is liberated," Jibril told a news conference in the eastern city of Benghazi. "Bani Walid doesn't have any outlets ... so it wouldn't stop the democratic process. Bani Walid would be dealt with as a renegade region."
A city of about 75,000 people, Sirte holds symbolic importance. Gaddafi transformed his birthplace from a sleepy fishing town into Libya's second capital.
At his instigation, parliament often sat in Sirte and he hosted international summits at the Ouagadougou Hall, a marble-clad conference centre he had built in the south of the city.
Gaddafi's supporters are too weak to regain power, but their resistance is frustrating the new rulers' efforts to start building the post-Gaddafi Libya.
In another development, the head of Libya's National Oil Corporation told Reuters in an interview the country will start pumping oil at two major oilfields with a combined capacity of 450,000 barrels per day (bpd) in about two weeks.
NOC chairman Nouri Berouin added that current production in the OPEC member was 350,0000 bpd. He reiterated that it could take up to 15 months for output to return to pre-war levels.
Revenue from oil is a crutial source of income for the NTC.