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Dug in on the hills above the town on the highway to Tripoli, the rebels were firing heavy and small arms and loyalist troops were responding with Grad rockets, said the correspondent, embedded with the rebels.
Asabah is strategically located 80 kilometres (50 miles) south of the capital, serving as the last barrier between the rebels and the garrison town of Gharyan.
Earlier on Wednesday, the pro-Kadhafi troops had caught rebels off guard and attacked Gualish, which the insurgents captured a week earlier, seizing nearly all of it.
But rebels poured in from surrounding villages and besieged the hamlet, driving the loyalists out and chasing them up the road toward Asabah, some 17 kilometres (11 miles) away.
As the fighting raged in the Nafusa Mountains, a rebel commander in the area said a peace deal was "impossible" because Kadhafi refuses to step down.
"Up to now it is impossible to get a political solution. Kadhafi wants to stay; the rebels don't want," said Colonel Juma Brahim, head of the rebels' operational command for the region.
"To the last moment Kadhafi is looking for a peace solution because he is weak, all the soldiers and equipment are coming to our side one by one," Brahim told AFP.
US Secretary of State Hillary Clinton, meanwhile, said at a joint news conference in Washington with Russian Foreign Minister Sergei Lavrov that Kadhafi's "days are numbered" after signs of advances on the field by rebels.
"Although neither of us can predict to you the exact day or hour that Kadhafi will leave power, we do understand and agree that his days are numbered," the chief US diplomat said.
"We will continue to work closely with our international partners including Russia to increase the pressure on him and his regime," Clinton said.
Lavrov played down differences with Clinton over Libya, saying: "We have less misunderstanding with the United States than with some European countries."
"We are united in that we have to start a political process as soon as possible," Lavrov said. "We have different channels, official and not so official."
However, the Russian foreign ministry said earlier Wednesday that Moscow would not take part in upcoming discussions on Libya to take place later this week in Turkey, which has also seen itself as a mediator in the conflict.
On Tuesday, French and Libyan officials talked up the chances of negotiating Kadhafi's withdrawal from power and an end to the conflict still wracking the country after months of military stalemate.
Before the latest counter-attack, the rebels in the Nafusa Mountains already faced a tough task in trying to take Asabah, even with allies inside the town fomenting revolution and spies providing intelligence on enemy positions.
While they have been buoyed by a clutch of victories in the mountains, Asabah is home to prominent families close to the regime.
It has a large military base and a population faithful to the regime. The Libyan leader felt comfortable enough to have a country house there.
Since the rebels took Gualish on July 6, they have been awaiting "the green light from NATO" to advance.
"We don't know when but there will be a battle," said Brahim, the rebel colonel.
In other developments on Wednesday, Belgium, Luxembourg and the Netherlands became the latest countries to recognise the opposition National Transitional Council as the Libyan people's legitimate representative, Belgian Foreign Minister Steven Vanackere said.
The announcement came ahead of a meeting Vanackere and his Dutch and Luxembourg counterparts were to hold with a rebel delegation.
The delegation, led by NTC leader Mahmud Jibril, held talks earlier Wednesday with NATO Secretary General Anders Fogh Rasmussen and the alliance's ambassadors at NATO headquarters.
Following that meeting, Jibril rejected accusations by Human Rights Watch that anti-Kadhafi forces had been responsible for looting, arson and abusing civilians.
He admitted a "few incidents" of abuse took place in the first two weeks of the insurrection, which began in mid-February, but "this is no longer the case in the liberated areas."
HRW said it "witnessed some of these acts, interviewed witnesses to others and spoke with a rebel commander about the abuses."
The abuses were said to have taken place in June and July -- as recently as last week -- as rebel forces pushed through the Nafusa Mountains.
"The rebel authorities have a duty to protect civilians and their property, especially hospitals, and discipline anyone responsible for looting or other abuse," said the organisation's Joe Stork.
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Asabah is strategically located 80 kilometres (50 miles) south of the capital, serving as the last barrier between the rebels and the garrison town of Gharyan.
Earlier on Wednesday, the pro-Kadhafi troops had caught rebels off guard and attacked Gualish, which the insurgents captured a week earlier, seizing nearly all of it.
But rebels poured in from surrounding villages and besieged the hamlet, driving the loyalists out and chasing them up the road toward Asabah, some 17 kilometres (11 miles) away.
As the fighting raged in the Nafusa Mountains, a rebel commander in the area said a peace deal was "impossible" because Kadhafi refuses to step down.
"Up to now it is impossible to get a political solution. Kadhafi wants to stay; the rebels don't want," said Colonel Juma Brahim, head of the rebels' operational command for the region.
"To the last moment Kadhafi is looking for a peace solution because he is weak, all the soldiers and equipment are coming to our side one by one," Brahim told AFP.
US Secretary of State Hillary Clinton, meanwhile, said at a joint news conference in Washington with Russian Foreign Minister Sergei Lavrov that Kadhafi's "days are numbered" after signs of advances on the field by rebels.
"Although neither of us can predict to you the exact day or hour that Kadhafi will leave power, we do understand and agree that his days are numbered," the chief US diplomat said.
"We will continue to work closely with our international partners including Russia to increase the pressure on him and his regime," Clinton said.
Lavrov played down differences with Clinton over Libya, saying: "We have less misunderstanding with the United States than with some European countries."
"We are united in that we have to start a political process as soon as possible," Lavrov said. "We have different channels, official and not so official."
However, the Russian foreign ministry said earlier Wednesday that Moscow would not take part in upcoming discussions on Libya to take place later this week in Turkey, which has also seen itself as a mediator in the conflict.
On Tuesday, French and Libyan officials talked up the chances of negotiating Kadhafi's withdrawal from power and an end to the conflict still wracking the country after months of military stalemate.
Before the latest counter-attack, the rebels in the Nafusa Mountains already faced a tough task in trying to take Asabah, even with allies inside the town fomenting revolution and spies providing intelligence on enemy positions.
While they have been buoyed by a clutch of victories in the mountains, Asabah is home to prominent families close to the regime.
It has a large military base and a population faithful to the regime. The Libyan leader felt comfortable enough to have a country house there.
Since the rebels took Gualish on July 6, they have been awaiting "the green light from NATO" to advance.
"We don't know when but there will be a battle," said Brahim, the rebel colonel.
In other developments on Wednesday, Belgium, Luxembourg and the Netherlands became the latest countries to recognise the opposition National Transitional Council as the Libyan people's legitimate representative, Belgian Foreign Minister Steven Vanackere said.
The announcement came ahead of a meeting Vanackere and his Dutch and Luxembourg counterparts were to hold with a rebel delegation.
The delegation, led by NTC leader Mahmud Jibril, held talks earlier Wednesday with NATO Secretary General Anders Fogh Rasmussen and the alliance's ambassadors at NATO headquarters.
Following that meeting, Jibril rejected accusations by Human Rights Watch that anti-Kadhafi forces had been responsible for looting, arson and abusing civilians.
He admitted a "few incidents" of abuse took place in the first two weeks of the insurrection, which began in mid-February, but "this is no longer the case in the liberated areas."
HRW said it "witnessed some of these acts, interviewed witnesses to others and spoke with a rebel commander about the abuses."
The abuses were said to have taken place in June and July -- as recently as last week -- as rebel forces pushed through the Nafusa Mountains.
"The rebel authorities have a duty to protect civilians and their property, especially hospitals, and discipline anyone responsible for looting or other abuse," said the organisation's Joe Stork.
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