Kadhafi's forces are "marching to cleanse the country" of insurgents, Libyan army spokesman Colonel Milad Hussein told a news conference in Tripoli.
"Our raids are forcing the terrorists to flee. We have liberated Zawiyah, Uqayla, Ras Lanuf and Brega, and the army is advancing to liberate the rest of the regions."
France, which alone has recognised the rebels' interim national council as the rightful representative of Libya, called for speeding up the push for a no-fly zone, as demanded on the ground in rebel-held areas.
Dozens of rebels fled east out of Brega towards Ajdabiya, the last rebel-held town before Benghazi which the Libyan opposition has made its de facto capital just 100 miles (170 kilometres) away.
Libyan state television declared Brega "purged of the armed gangs."
General Abdel Fatah Yunis, who resigned as interior minister soon after the rebellion began in mid-February, vowed to defend Ajdabiya.
"Ajdabiya is a vital city. It's on the route to the east, to Benghazi and to Tobruk and also to the south. Ajdabiya's defence is very important," he told reporters in Benghazi.
"It's a vital city. We will defend it."
From Ajdabiya there is also a straight desert road to the oil port of Tobruk, which to date has given rebels full control over the east up to the Egyptian border, a vital transit route for supplies from abroad.
"Even if our forces have withdrawn tactically a few kilometres, that means nothing in military terms, especially when you are fighting in territory that is semi-desert. There is not a lot of value to this land," said Yunis.
He said the rebel fighters aimed to lure Kadhafi's army onto more favourable ground.
"We feel he (Kadhafi) will have serious logistical problems and serious difficulties for supplying his troops, because they're getting extended all the time," he argued.
The International Committee of the Red Cross, meanwhile, said it had shipped seven truckloads of food and medicine to Benghazi, where the streets were largely deserted around the rebels' headquarters in the courthouse on Sunday.
"The euphoria is over. We are frightened of what's coming, frightened of getting blown up," said retired civil servant Mohammed Gepsi.
The Doctors Without Borders charity warned that rebels were being denied medical help in government-held areas and urged access to treatment for the wounded.
"In several conflict zones, such as Zawiyah and Misrata, large numbers of people are cut off from any external assistance, while critical medical needs and shortages of medicine and materials are reported," it said.
Zawiyah, just west of the capital, fell to Kadhafi's forces on Friday after bitter fighting, while in Misrata, a city east of Tripoli which continues to hold out against attacks that last week killed at least 21 people, residents reported renewed firing on Sunday.
The US-based Human Rights Watch said Libyan security forces have unleashed a wave of arbitrary arrests in Tripoli, "brutally suppressing all opposition."
In the capital, state television said foreign firms were being asked to resume oil exports, claiming its ports are safe despite the conflict which broke out on February 15 and the flight of tens of thousands of expatriate workers.
"All employees are asked to return to their jobs in all oil facilities. And we urge (foreign) firms to send their tankers to load and unload," the television said, quoting the National Oil Corp.
Oil giant Total said on Friday that the unrest had slashed Libya's output by 1.4 million barrels a day to under 300,000. Libya's largest market is Europe.
Kadhafi has repeatedly charged that Al-Qaeda was behind the uprising, and senior Qaeda militant Abu Yahya al-Libi, himself a Libyan, warned of the heavy price of a rebel defeat, in a videotape posted on jihadist websites on Sunday.
Libyan insurgents "must carry on with their revolution, without hesitation or fear, in order to push Kadhafi into the abyss," said Libi, considered one of Al-Qaeda's top ideologues.
Rebel morale was boosted by an Arab League decision on Saturday to support a no-fly zone over Libya and to make contact with the insurgents' national council in Benghazi.
But apart from defectors from Kadhafi's army, the rebels have no military experience, few heavy weapons and are virtually powerless against air attack.
Declaring that Kadhafi had lost all legitimacy, the Arab League urged the UN Security Council "to assume its responsibilities" and "take the necessary measures to impose an air exclusion zone for Libyan warplanes."
The White House welcomed the decision and vowed to "advance our efforts to pressure Kadhafi, to support the Libyan opposition, and to prepare for all contingencies, in close coordination with our international partners."
But Washington has stopped short of giving full support for the no-fly zone which is being pushed for by Britain and France.
Tripoli on Sunday said the Arab League decision was based on "fallacious allegations" unrelated to events on the ground.
In Paris on Monday, US Secretary of State Hillary Clinton is to meet her counterparts from the G8 to discuss ways to help the Libyan opposition and hold talks with Mahmud Jibril, top member of the national council.
Clinton has said a plan for a no-fly zone would be presented to NATO on Tuesday.
Elsewhere in the Middle East, at least three people were killed and dozens were wounded when police and ruling party loyalists attacked anti-government protesters at the main opposition sit-in in Yemen's capital, witnesses said.
In Bahrain, police fired tear gas and clashed with protesters trying to occupy Manama's banking centre, on the second day of violent demonstrations in the tiny Gulf state. More than 200 wounded were treated in hospital.
The violence prompted Washington to urge the Yemeni and Bahraini governments to exercise restraint and respect the "universal rights" of demonstrators.
And Oman's sultan granted legislative power to the previously toothless Oman Council, or parliament, after weeks of anti-government protests.