Fighters formerly loyal to Libyan leader Muammar Gadafy are in control of the town of Bani Walid, about 200km south-east of the capital, after attacking a pro-government militia based there.
Four people were killed in the clashes. A further 20 were wounded.
The Gadafy supporters were flying green flags in the town, a symbol of allegiance to the dead dictators ousted administration.
"They control the town now. They are roaming the town," a militia member told Reuters from Bani Walid.
Bani Walid, base of the powerful Warfallah tribe, was one of the last towns in Libya to surrender to the anti-Gadafy rebellion last year. Many people there oppose the country's new leadership.
The uprising in Bani Walid could not come at a worse time for the ruling National Transitional Council (NTC). It is already reeling from violent protests in the eastern city of Benghazi and the resignation of its second most senior official.
An air force official told Reuters that jets were being mobilised to fly to Bani Walid. In Tripoli, there were signs of security being tightened, witnesses in the city said.
However it is not immediately clear what the government in Tripoli can do. It has yet to demonstrate that it has an effective fighting force under its command and Bani Walid, protected behind a deep valley, is difficult to attack.
Reuters