The regime of Colonel Muammar Gaddafi has launched a devastating assault on the opposition-held town of Zawiyah, deploying up to 50 tanks and scores of pickup trucks carrying troops.

Emerging accounts told of massive damage inflicted on the refinery town, which rose up against the Gaddafi regime two weeks ago.

The latest and heaviest assault in Zawiyah came as the rebel leadership said that if Gaddafi stepped down within 72 hours, it would not seek to bring him to justice.

Earlier, the rebels said they had rejected an offer from the Libyan leader to negotiate his surrender of power. The government called such reports "absolute nonsense".

If it is confirmed, the defeat of opposition forces in Zawiyah, just 30 miles from Tripoli – already claimed twice by the regime in recent days – would mark a significant psychological moment for Gaddafi.

Although most sources were suggesting the rebellion in Zawiyah had been crushed, a resident named Ibrahim claimed combat was continuing.

The Gaddafi regime has cut all mobile and landline communications with the town and accounts of today's fighting came from witnesses who had driven out of the combat area and one who had climbed on a roof to find a phone signal.

Residents described a hail of bullets, with women and children being killed and families trapped within their homes.

The violence of this assault marks a disturbing escalation in the developing civil war in Libya, suggesting that the regime has now decided to pursue a no-holds barred strategy to crush the rebellion, despite the growing threats of international action.

Witnesses in Zawiyah said many buildings, including mosques, had been destroyed and rebel forces had used loudhailers to call on residents to help defend positions in the town centre.

"Fighting is still going on now – Gaddafi's forces are using tanks," Ibrahim told Reuters by phone. "There are also sporadic air strikes. The situation here is very bad.

"Many buildings have been destroyed including mosques. About 40 to 50 tanks are taking part in the bombardment. But they could not reach the centre of the town, which is still in the control of the revolutionaries," he said.

"Telephone connections were cut. I'm now able to speak on the phone because I'm standing on the top of a building."

A Ghanaian migrant worker who had been living in Zawiyah managed to escape and travel to neighbouring Tunisia.

"The rebels in the streets were calling people from speakers to help defend the town," he said after crossing the border.

A Libyan man who lives in exile abroad said he managed to get through by phone to a friend in the city.

"My friend said it's miserable and that Gaddafi forces are trying to destroy the city. Many buildings are completely destroyed, including hospitals, electricity lines and generators," he said.

"People cannot run away, it's cordoned off. They cannot flee. All those who can fight are fighting, including teenagers. Children and women are being hidden."

Journalists have been largely unable to report from inside the town, kept away by the military encirclement of the town and threat of arrest.

Those few who have managed to get inside have described horrific scenes including the targeting of a large protest march and soldiers firing on civilians.

"Zawiyah has been torn down to ashes," said one source. A second said the town had been "flattened". Other witnesses said the town centre had come under rocket fire.

Up to 120 Toyota Tundra vehicles, which the regime has used as transport for its soldiers, were reported to have been sent in for what was clearly intended as the final assault.

Zawiyah, a town with a population of 200,000, has limited strategic value and its few hundred fighters are unable to pose a real threat to Tripoli.

But the resistance there has become hugely symbolic as fighters inside have fought off wave after wave of government attacks, disabling tanks and armoured personnel carriers that have reached Martyrs' Square in the city centre on several occasions.

A Gaddafi spokesman, Mussa Ibrahim, said the government was in control of the town, adding however that a small group of fighters was still putting up resistance.

"The situation is very difficult. There are still pockets of resistance, maybe 30-40 people, hiding in the streets and in the cemetery. They are desperate," he told Reuters.

Another Zawiyah resident, who asked not to be identified, said pro-Gaddafi forces had deployed snipers along the road out of town and were shooting at people who travelled that way.

"They [Gaddafi's forces] will never enter the town. Revolutionaries are everywhere," he said.