Libyan rebels are fleeing the oil port of Ras Lanuf after sustained attacks by forces loyal to Col Muammar Gaddafi.
Rebels were travelling eastwards in vehicles after coming under fire from rockets and shells, reports said.
Libyan state TV said pro-Gaddafi troops had also cleared rebels from the oil port of Sidra, west of Ras Lanuf.
In recent days, Col Gaddafi's forces have been trying to regain ground in the rebel-held east, as well as the town of Zawiya, west of Tripoli.
'Running away'
Meanwhile, France has become the first country to recognise the Libyan rebel leadership, the National Transitional Council National (NTC), as the country's legitimate government.
It came as Nato met to discuss international military options in the Libyan conflict, including the possibility of imposing a no-fly zone.
There has been fierce fighting in Libya since mid-February, when opponents to Col Gaddafi's 41-year rule took many towns and cities in eastern Libya, in the wake of successful popular uprisings in neighbouring Tunisia and Egypt.
One report on Thursday said that as they advanced on Ras Lanuf, tanks driven by pro-Gaddafi forces had moved to their easternmost position since the conflict began.
A witness in Ras Lanuf said he had seen dozens of dead bodies in the residential part of the town.
A BBC reporter said the Ras Lanuf hospital had been evacuated due to the bombardment, and a mosque had been hit in a residential area where the families of oil workers live.
"Gaddafi is attacking us with planes, tanks, rockets and heavy weapons, we are unarmed civilians and there many families and kids were hit," one Libyan told the BBC.
"We've been defeated," a rebel fighter told AFP news agency. "They are shelling and we are running away. That means that they're taking Ras Lanuf".
But Reuters quoted rebels as denying that the town had fallen.
Government planes also bombed Brega, another oil port further east.
One witness there told the BBC that rebels were able to resist Gaddafi ground troops, but were more vulnerable to air attacks. The air strikes had also been targeting oil facilities, he said. BBC News
