Libyan rebels have deployed tanks, artillery and a helicopter to repel an attack by pro-Gaddafi forces on the key town of Ajdabiya.
The BBC's Ian Pannell, in the rebel stronghold of Benghazi, says this is the first time defecting army units have faced government forces.
If taken, the town would open the way to Benghazi - Libya's second city, with a population of one million.
A UN Security Council vote on action in Libya could be held later on Thursday.
The US now favours imposing a no-fly zone over Libya, and even taking further measures, to halt the advance of pro-Gaddafi loyalists.
Russia expressed concern at some of the implications of the proposals and put forward a counter-resolution.
Government forces say they have taken Ajdabiya and an attack on Benghazi, 160km (100 miles) away, is imminent.
Rebels say they fear "genocide" without swift UN action.
On Wednesday, the International Committee of the Red Cross withdrew from Benghazi, citing security concerns but a BBC correspondent says there is no civilian exodus from the city.
Following the toppling of the long-time leaders of neighbouring Tunisia and Egypt earlier this year, Libyan protesters started to demand that Col Muammar Gaddafi step down after 42 years of autocratic rule.
They quickly seized much of eastern Libya, but in recent days pro-Gaddafi forces have retaken several towns.
Our correspondent says the deployment of defecting army units to the front line is a significant development but it is too soon to tell whether it will prove to be decisive.
'Over in 48 hours'
On Wednesday, the UN Security Council undertook lengthy and difficult negotiations over a resolution aimed at authorising a no-fly zone.
US ambassador to the UN Susan Rice said a no-fly zone would bring only limited help. She hoped for an early vote on a draft.
The US has previously been cool on the effectiveness of such a zone, but Ms Rice said this was now needed.
"The US view is that we need to be prepared to contemplate steps that include, but perhaps go beyond, a no-fly zone at this point, as the situation on the ground has evolved and as a no-fly zone has inherent limitations in terms of protection of civilians at immediate risk."
The BBC's Barbara Plett at the UN says the draft resolution contains controversial language authorising all necessary measures to protect civilians, which some interpret as permitting strikes against government ground forces if civilians are under attack.
She says that may have been what Russia's ambassador was referring to when he angrily declared that some members had introduced proposals with far-reaching implications.
Russia has strong reservations about military action, as does China, and instead offered a counter-resolution calling first for a ceasefire.
Western diplomats said it was rejected because it lacked teeth.
Supporters of the draft resolution stressed the urgency of action and are pushing for a vote on Thursday.
Ms Rice said: "We will continue our negotiations early on Thursday, fully focused on the urgency and the gravity of the situation on the ground and it's my hope that we may be in a position to vote a serious resolution as early as Thursday. We're working very hard toward that end."
Pro-Gaddafi troops have been moving closer to Benghazi in recent days, as well as mounting attacks on rebel-held towns in the west, such as Misrata.
One of Col Gaddafi's sons, Saif al-Islam, has claimed Benghazi will be recaptured soon even if a no-fly zone is imposed.
"Everything will be over in 48 hours," he told Euronews on Wednesday.
Ibrahim Dabbashi, Libya's ambassador to the UN who has defected from the Gaddafi regime, warned the situation could escalate quickly.
"In the coming hours we will see a real genocide if the international community does not act quickly," he said on Wednesday.
On Wednesday evening, state TV warned residents of Benghazi that they had until midnight (2200 GMT) to abandon rebel locations and arms storage areas, Reuters reports.
Col Gaddafi told Lebanese TV that he did not expect there to be a battle in the city, saying the Libyan people had been helping to oust al-Qaeda elements.
"All the places where they [rebels] are fortified, are now being sterilised with the help of the people... who say where their locations are," Reuters quoted him as telling LBC TV.