Rebels say there are engaged in a "street war" in Brega It has not been possible to verify the rebel claims.
The fall of the town, home to one of Libya's biggest oil facilities, would be a major breakthrough for anti-Gaddafi forces, correspondents say.
Brega, about 750km (465 miles) east of the capital Tripoli, has changed hands several times in the fighting along Libya's Mediterranean coast since the rebellion began in February.
"Some small groups have made it inside, but we do not control the whole [town] yet," Mohammed Zawi, a spokesman for the rebel forces, was quoted as saying by AFP news agency.
"It is now close fighting," he said.
In a separate development on Monday, South Africa's President Jacob Zuma, who has led a mediation mission on behalf of the African Union, said that Libya needed a democratic government.
But he said that the Libyan people must decide their own destiny, and that if Col Gaddafi goes conditions must be in place as to when, where and how that happens.
Mr Zuma made his comments during a joint news conference with the visiting British Prime Minister David Cameron.

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Jacob Zuma said it was for Libyans to decide their destiny
Russia's Foreign Minister Sergei Lavrov said that such a move would amount to taking sides in a civil war.
His statement comes a day after the US and other Western and Arab powers recognised the Libyan opposition as the country's "legitimate governing authority" and repeated their demand that Col Gaddafi and his family should give up power.
Nato 'hits' Three rebel fighters were killed and 96 wounded in Brega on Sunday, AFP quoted medical staff as saying - bringing the overall rebel toll since fighting began to 15 dead and 274 wounded.
Earlier another rebel spokesman, Mohammed al-Rajaly, told AP news agency that his forces had liberated the north-eastern half of Brega and were moving against government forces in the south-western part.
Nato aircraft have been targeting pro-Gaddafi forces near Brega in recent days, reporting hits on armoured vehicles and rocket launchers near the town, according to Reuters.
Nato said its warplanes hit a military storage facility containing tanks, armoured personnel carriers and ammunition in Tripoli's eastern outskirts early on Sunday.
Col Gaddafi has refused to step down. In a speech on Saturday, he described the rebels as traitors and rejected suggestions that he was about to leave the country.



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