Libya clashes widen, unrest erupts in Tripoli

TRIPOLI (Reuters) - Forces loyal to Muammar Gaddafi widened attacks on rebel-held areas in an escalation of Libya's crisis on Friday and unrest spread to the capital when gunmen opened fire to break up dissident protests.

Eastern-based rebels pressed home their push to the west with an attack on the oil town of Ras Lanuf, claiming to have taken its airport.

The rebels earlier told Reuters they were open to talks only on Gaddafi's exile or resignation following attacks on civilians that have provoked international condemnation, a raft of arms and economic sanctions and a war crimes probe.

In developments likely to raise concern about dwindling food and medical supplies in rebel-held areas, reports from around the vast country suggested a sharp worsening of a conflict that the West fears could trigger a mass refugee exodus to Europe.

The popular uprising against Gaddafi, the bloodiest yet against a long-serving ruler in the Arab world, has knocked out nearly 50 percent of the OPEC-member's 1.6 million barrels of oil per day output, the bedrock of its economy.

In the east, rebels fired a sustained barrage of mortar bombs and rockets at a military base in the oil terminal of the eastern port of Ras Lanuf, which lies on a strategic coastal road, and the army returned fire with artillery. Rebel sources told Reuters they had taken the town's airport.

In Zawiyah, about 50 km (30 miles) west of the capital, pro-Gaddafi forces fought for hours with rebels who have been holding the town centre, two residents told Reuters.

"From 11 a.m. (0900 GMT) until now Gaddafi's mercenaries, mainly from Africa, have been opening fire on people here," said a local man called Ibrahim. "Hundreds of victims are now in the town hospital."

"We have no choice but to continue our fight against this dictator." The account could not be verified independently.

An oil facility at Zueitina, south of the Libyan rebel-held city of Benghazi, has been damaged and was on fire, Al Jazeera said, showing a video of black smoke rising from an oil plant.

Abdullah al-Mahdi, a rebel spokesman, told Al Jazeera opposition fighters would attack the capital once a "no-fly" zone was enforced by international powers to try to shatter Gaddafi's grip on the North African oil producer.

Western nations have called for Gaddafi to go and are considering various options including the imposition of a no-fly zone, but are wary about any offensive military involvement to stabilise the world's 12th-largest oil exporter.

In Tripoli, shooting rang out across Tajoura district as Gaddafi loyalists broke up a crowd of protesters seeking an end to his long rule and shouting "Gaddafi is the enemy of God!"

The demonstrators spilt out of the Murat Adha mosque after Friday prayers, and several hundred of them began chanting for an end to Gaddafi's four decades in power.

"This is the end for Gaddafi. It's over. Forty years of crimes are over," said Faragha Salim, an engineer at the protest in Tajoura.

In the east, rebels advanced towards the key Ras Lanuf oil terminal, 600 km (400 miles) east of Tripoli, calling for foreign air strikes to set up a no-fly zone after three days of attacks by government jets.

"Victory or death ... We will not stop until we liberate all this country," Mustafa Abdel Jalil, head of the rebel National Libyan Council told supporters of the two-week-old uprising.

Ahmed Jabreel, an aide to Abdel Jalil, said if there was any negotiation "it will be on one single thing -- how Gaddafi is going to leave the country or step down so we can save lives. There is nothing else to negotiate."

Rebel volunteers defending the opposition's expanding grip on the coast road said a rocket attack by a government warplane just missed a rebel-held military base which houses a big ammunition store in the eastern town of Ajdabiyah.

The air attacks have failed to stop the rebels using the coast road to push their front line west of Brega, an oil terminal town 800 km (500 miles) east of Tripoli.

U.S. President Barack Obama said he was concerned a bloody stalemate could develop between Gaddafi and rebel forces but gave no sign of a willingness to intervene militarily. "Muammar Gaddafi has lost the legitimacy to lead and he must leave," Obama said.

The upheaval is causing a humanitarian crisis, especially on the Tunisian border where tens of thousands of foreign workers have fled to safety. But an organised international airlift started to relieve the human flood from Libya as word spread to refugees that planes were taking them home.

ASSET FREEZE

As international efforts progressed to isolate the Libyan leader, Austria widened an asset freeze list to include a top official at the Libyan Investment Authority, Mustafa Zarti, because of possible ties to Gaddafi's inner circle.

Zarti, 40, will be questioned by Austrian authorities on Friday, interior ministry spokesman Rudolf Gollia said.

Zarti told Austrian radio he had no clue how much money the Gaddafi clan might have amassed in the Alpine republic.

Libya's main sovereign wealth fund, the LIA, controls about $65 billion. It worked to enhance Libya's credibility on the international stage by acquiring stakes in European blue-chip firms including Italian bank UniCredit and British publisher Pearson, owner of the Financial Times.

The government says it is not using military force to retake rebel-held cities although one official did not rule it out if all other options were exhausted.

In The Hague, International Criminal Court prosecutor Luis Moreno-Ocampo said Gaddafi and members of his inner circle could be investigated for possible war crimes committed since the uprising broke out in mid-February.

In London, the London School of Economics said it had asked a leading legal figure to investigate its ties to Libya after its director resigned for accepting funding from a charity run by Saif al-Islam.

Howard Davies, a former deputy governor of Britain's central bank who has also held a series of senior positions in the business world, quit late on Thursday after accepting that he had damaged the prestigious college's reputation.

He is the first high-profile British figure to lose his job over commercial ties with Gaddafi.

(Additional reporting by Maria Golovnina, Yvonne Bell and Chris Helgren in Tripoli, Tom Pfeiffer and Alexander Dziadosz in Benghazi, Souhail Karam and Marie-Louise Gumuchian in Rabat, Yannis Behrakis and Douglas Hamilton on Tunisia border; Christian Lowe and Hamid Ould Ahmed in Algiers; Writing by William Maclean; Editing by Giles Elgood)