The watchdog said more than 20,000 people, mostly civilians, have now died since the uprising against President Bashar al-Assad's regime erupted in March 2011.
"It started at 4:00 am (1:00 GMT) and eight hours later it's still hell. This is madness," an AFP correspondent reported from the Aleppo district of Salaheddin.
Civilians crowded into basements seeking refuge from the bombing, with the Observatory's Rami Abdel Rahman describing the clashes as the uprising's "fiercest."
"There are thousands of people in the streets fleeing the bombardment. They're being terrorised by helicopter gunships flying at low altitude," said an activist, adding many had taken refuge in public parks.
Official news agency SANA reported fighting in Furqan district where "a terrorist group was terrorising residents."
It said two "terrorists" had been killed and three others captured, and their arms and vehicles seized.
Colonel Abdel Jabbar al-Oqaidi of the rebel Free Syrian Army said his forces had repulsed troops in Salaheddin and that the regime offensive had been stopped.
"We managed to force the army to the neighbourhood of Hamdaniyeh," he told AFP on the phone, adding that while the army had been halted on the ground, artillery and gunships continued to pound the city.
Abdel Rahman said the fact the soldiers had been stopped in Salaheddin "does not necessarily mean a withdrawal as their strategy is to bombard ... to cause an exodus then launch an assault even more fierce."
An AFP correspondent said rebels were poised to launch a final raid on a strategic police post in the city centre, where 100 men armed with Kalashnikovs have been holding out for three days.
Its capture would open a corridor between Salaheddin and the rebel-held district of Sakhur, some six kilometres (four miles) to the northeast.
-- 'Assad to use force till end' --
Pro-government daily Al-Watan had warned the "mother of all battles" loomed in Aleppo as the government moved to reassert its authority after recapturing rebel-held districts of Damascus.
Both sides acknowledged casualties were likely to be high, and world powers have called for "maximum pressure" to stop the regime from carrying out the assault and to avert another massacre.
In late May, at least 108 people were killed near the central town of Houla, the United Nations said. On July 12, regime forces killed more than 150 people in the central village of Treimsa, the Observatory said.
Russia warned a "tragedy" was looming but said it was unrealistic to expect the government would stand by when rebels were occupying major cities.
"We are persuading the government that they need to make some first gestures," said Foreign Minister Sergei Lavrov.
"But when the armed opposition are occupying cities like Aleppo, where yet another tragedy is brewing as I understand ... it is not realistic to expect that they will accept this."
Lavrov accused the West of aiding opposition fighters.
"Our Western partners ... together with some of Syria's neighbours are essentially encouraging, supporting and directing an armed struggle against the regime."
"The price of this is yet more blood," he said.
Russia has repeatedly rejected accusations it is backing Assad's regime in the conflict, claiming to have an even-handed approach while rebuking the West for siding with the rebels.
Lavrov added there were meetings planned in the near future with Syrian rebels "in Russia and foreign countries where these boys are based," and that the point driven home would be "that if it is a revolution, they must not seek the backing of the UN Security Council".
Asked later if Russia would provide Assad with asylum, he said: "We are not even thinking of that," Russian news agencies reported.
French President Francois Hollande specifically addressed Russia and China as he urged the UN Security Council to rapidly intervene to pre-empt an all-out civil war in Syria.
Hollande said Assad's regime was doomed and "will therefore use force right to the end."
"The only solution which will allow Syrians to reconcile and reunite is the departure of Bashar al-Assad and the formation of a transitional government," he told reporters.
"It is not too late but with every passing day it's more repression, upheavals and consequently massacres."
Turkey warned it could "not remain an observer" as violence raged across its southern border.
"We must do what we can together in the United Nations Security Council, and also in the Organisation of Islamic Cooperation and the Arab League, to make sure that we can make some important progress in trying to avert this appalling situation," said Prime Minister Recep Tayyip Erdogan.