Loyalists of Libya's ousted leader Muammar Gaddafi have seized control of the town of Bani Walid, raising the former government's green flag, an official and a commander have said.

The retaking of the town, 150km southeast of Tripoli, the capital, comes as Libya's new leaders have struggled to unify the oil-rich North African nation three months after Gaddafi was captured and killed.

Hundreds of well-equipped and highly trained remnants of Gaddafi's forces raised the flag over buildings in the western city late on Monday after hours of clashes, said Mubarak al-Fatamni, the head of Bani Walid's local council.

Fatamni, who fled to the nearby city of Misrata following the attack, said four revolutionary fighters were killed and 25 others were wounded.

A resident of the town said the fighters used heavy weaponry, including 106-mm anti-tank guns, and that seven people were killed and 20 wounded.

Al Jazeera's Stefanie Dekker, reporting from the outskirts of Bani Walid, said that pro-Gaddafi fighters seized the town late on Monday and are still in control there.

"Many brigades from other parts of the country have assembled here on the outskirts of Bani Walid and are now waiting for orders from the government as to how to proceed," she said.

Fatamni said the Libyan defense ministry had not sent any forces to the area.

NTC let us down

"There are around 100 and 150 men armed with heavy weapons who are attacking," Mahmud Warfelli, a spokesperson for the Bani Walid local council.

"We have asked for the army to intervene, but the defense ministry and NTC [National Transitional Council] have let us down."

"[The gunmen] took control and hoisted the green flag on some important districts in the center of the city," he said, referring to the Gaddafi-era flag. "We've been warning about this for the past two months."

A top commander of a revolutionary brigade in Bani Walid, Ali al-Fatamni, who was in Benghazi during the attack, said he has lost contact with other fighters in the town.

Clashes were also reported in Benghazi and Tripoli.

The bold attacks, which have led authorities to declare states of emergency in several areas, are the latest breakdown in security, three months after Gaddafi's capture and killing.

Protests have surged in recent weeks, with people demanding that the interim leaders deliver on promises of transparency and compensation for those injured in the fighting.

Libya's interim government met on Tuesday to discuss the deadly clashes in the former regime's bastion as sources said calm returned to the town.

"The government is in a meeting to discuss the issue of Bani Walid," a source in the administration of Prime Minister Abdel Rahim al-Kib told AFP news agency.

Interior Minister Fawzi Abdelali denied the claims by local officials that the town was attacked by supporters of slain Gaddafi.

Abdelali said the clashes erupted due to "internal problems" in Bani Walid.

Issue of compensation

A correspondent for the AFP news agency, who managed to enter Bani Walid for a short time on Monday, said thick smoke billowed into the sky.

They said the identity of those present there was unclear, and there was limited evidence of the new Libyan authorities on the roads outside the town.

Abdelali told Libyan television late on Monday that the fighting was linked to "the issue of compensation for those affected by last year's war".

"The information we have from inside the city does not say that there are green flags [hoisted on town buildings] and there is nothing in relation to the former regime," referring to claims made by several other local officials.

Colonel Salem al-Ouaer, a tribal leader from Bani Walid, told AFP that calm was returning to the town on Tuesday.

"The situation is under control and calm is returning," he said.

Ouaer said that representatives of local tribes were holding a meeting to discuss the issue outside Bani Walid with a delegation of tribes from the nearby towns of Zintan and Sabratha.

He said local sheikhs of Bani Walid were also meeting at a mosque in the town.

"What happened yesterday was purely a local conflict," Ouaer said, indicating that the firefight was not caused by supporters of Gaddafi as claimed by other officials. 

Ouaer said he was in touch with the chief of the ruling NTC, Mustafa Abdel Jalil, and Defence Minister Osama Juili, to "update them of the situation in Bani Walid".

Bani Walid was one of the last pro-Gaddafi bastions to fall in the bloody uprising against the slain leader.

Its capture was followed days later by the fall of his hometown Sirte in a battle which also led to Gaddafi's killing and marked the "liberation" of Libya.

PHOTO CAPTION

A damaged tank is seen after an attack by armed Gaddafi loyalists in Bani Walid, a town about 200 km (120 miles) from Tripoli, in this still image taken from video January 24, 2012.

Aljazeera