A commander of the fighters said talks aimed at securing the peaceful surrender of Gaddafi's forces in Bani Walid had been abandoned.
Fighters loyal to Libya's new rulers advanced on one of Muammar Gaddafi's last remaining bastions on Sunday, as secret files shed light on his regime's links to US and British spy agencies.
A commander of the fighters said talks aimed at securing the peaceful surrender of Gaddafi's forces in Bani Walid had been abandoned and an assault on the oasis town southeast of Tripoli was imminent.
"We are getting ready," said Mohamed al-Fassi, checkpoint commander in the village of Shishan, 70 kilometres (45 miles) north of Bani Walid.
"Negotiations between Gaddafi's men and our forces have ended. These people aren't serious. Twice they promised to surrender only to go back on their word," he said.
"In reality they have just been taking advantage of the situation to try to save their skins."
The new government's interim interior minister Ahmed Darrat told AFP that he was confident the town's capture was imminent. "We expect Bani Walid to be freed today or tomorrow," he said.
A local spokesman for the National Transitional Council (NTC) now governing Libya said the frontline stood 15 to 20 kilometres (10 to 12 miles) north of Bani Walid and that troops were poised for an advance.
"We are waiting for orders to go into the city," Mahmud Abdelaziz said.
"Last night the Gaddafi forces tried to move out. Our fighters responded and there were some clashes lasting a few minutes."
On Saturday, the deputy chief of the military council in the town of Tarhuna, north of Bani Walid, said Gaddafi's forces had been given until 0800 GMT on Sunday to surrender.
Abdulrazzak Naduri said the ousted strongman's son Saadi was still in Bani Walid, along with other senior figures of the fallen regime, while prominent son Seif al-Islam had fled the town.
"The revolutionaries have given an ultimatum to the tribal chiefs in Bani Walid," Naduri said in Tarhuna, some 80 kilometres (50 miles) from Bani Walid.
"Either they raise the white flag of surrender or the fighting begins."
Preparations for the offensive by the former rebels appeared to be well underway even though NTC chairman Mustafa Abdel Jalil said in Benghazi on Saturday that a truce declared until September 10 remained in force.
"We are in a position of strength to enter any city but we want to avoid any bloodshed, especially in sensitive areas such as tribal areas," he said, adding military deployments would continue during the ceasefire.
Naduri said Saadi Gaddafi, the toppled strongman's spokesman Mussa Ibrahim, and Mansur Dau, head of the revolutionary committees that propped up Gaddafi's regime, were still in Bani Walid.
But Seif al-Islam, the regime's most prominent face and vocal interlocutor, had fled two days ago, he said. "God alone knows which road he took," he added.
Civilians who managed to flee the town said that most of Kadhafi's forces had now fled taking their heavy weaponry with them into the surrounding mountains.
NATO said its warplanes had hit an ammunition storage facility near Bani Walid on Saturday.
Alliance aircraft also hit a barracks, a military police camp and 11 other targets in Gaddafi's hometown Sirte on the Mediterranean coast and carried out bombing raids on two other towns that remain in the hands of Kadhafi forces -- Buwayrat on the coast and Hun in the Al-Jufra oasis.
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