Forces loyal to Libyan leader Moammar Gadhafi are "marching to cleanse the country" of insurgents, military spokesman Colonel Milad Hussein told a news conference on Sunday.

"Our raids are forcing the terrorists to flee. We have liberated Zawiyah, Uqayla, Ras Lanuf and Brega and the army is advancing to liberate the rest of the regions," he said.

The Arab League was to hold key talks on the conflict in member state Libya Saturday, predicted to back a no-fly zone over the country to ramp up the pressure on strongman Moammar Gadhafi.

Secretary General Amr Moussa called for a no-fly zone and said he wants the pan-Arab organization to play a role in imposing it, in an interview published Saturday.

Libya decided on Friday to "suspend" diplomatic relations with France, Deputy Foreign Minister Khaled Kaaim said at a press conference.

The Libyan government has slammed what it called France's "illegal" decision on Thursday to recognize Libya's rebels and warned that the move could lead to a break in relations.

Libyan rebels battled troops loyal to Moammar Gadhafi outside Ras Lanuf on Friday, finding themselves on the back foot and outgunned a day after the regime recaptured the key oil town.

As the two sides exchanged rocket and shell fire east of town, fighter jets screeched over rebel positions on bombing runs, hitting a building used as a checkpoint and setting ablaze an oil storage tank at a nearby refinery.

Western powers ramped up pressure on Moammar Gadhafi Friday, with France calling for targeted strikes if he bombs his people, as a crisis summit exposed an EU rift over how to force the Libyan leader out.

The pivotal summit, capping 48 hours of talks also involving NATO defense ministers and European Union foreign ministers, opened with the 27-nation bloc divided over military action as well as a British-French push for formal recognition of Gadhafi's opponents.

Libyan embattled leader Moammar Gadhafi threatened Europe on Friday with the withdrawal of Libyan support for the international war on terror and to prevent illegal migration, the official Jana news agency reported.

If "Europe does not support, and ignores, the active role of Libya in the fight against migration and as guarantor of stability in North Africa and all of Africa, Libya will be obliged ... to withdraw its efforts in the battle against terrorism and completely change its stance toward al-Qaida," said a message Jana reported was signed by Gadhafi.

House Speaker Nabih Berri demanded on Friday an immediate recognition by all Arab governments of the Libyan rebel National Council.

He said in a letter to the head of the Arab Inter-parliamentary Union Mohammed bin Mubarak al-Khulaifi: “Immediate calls should be made to all Arab governments for the immediate recognition of the council which represents the popular revolution and the people’s resistance to the barbarism of the Gadhafi regime.”

Libya is planning to cut its diplomatic relations with France after French President Nicolas Sarkozy recognized rebels opposed to Moammar Gadhafi, the official Jana news agency reported Thursday.

The Tripoli government would "consider severing ties with France after information about the dangerous intervention in Libyan affairs," a foreign ministry official was quoted as saying by Jana.

Relentless pounding by Moammar Gadhafi's forces sent rebels fleeing a key oil hub Thursday, and a town near Tripoli was recaptured, as the Red Cross warned of escalating conflict in Libya that it termed a civil war.

As loyalists appeared to have wrested back the initiative on the battlefield, a source close to Nicolas Sarkozy said the French president will propose "targeted air strikes" in Libya.

French Foreign Minister Alain Juppe on Thursday said Paris and Berlin were calling on their European Union partners to engage in dialogue with Libyan opposition leaders.

Speaking after talks with German Foreign Minister Guido Westerwelle, Juppe said, "We are on the same track to say Colonel Gadhafi is discredited, he must go, we must engage dialogue with the new Libyan representatives."