The CA's Kevin Connolly reports on the celebrations in Benghazi after rumours that Sirte had fallen to the rebels.
Coalition air raids have hit Muammar Gaddafi's birthplace of Sirte, a key target for westward-advancing rebels.
A Libyan government spokesman said three Libyan civilians had been killed in the city's port.Unconfirmed rumours that rebels had taken Sirte sparked celebratory gunfire overnight in their stronghold Benghazi.
They came as Nato took full command of the whole military operation in Libya, intended to enforce a UN resolution to protect civilians.Foreign correspondents in Sirte said they heard several loud explosions in the city as aircraft flew overhead.
A rebel spokesman in Benghazi said Sirte was now in the hands of rebel forces - but there has been no independent confirmation of the claim, and international journalists inside the city suggested it was still in government hands on Monday.
Meanwhile, Qatar became the first Arab nation to recognise the rebel leadership - the Transitional National Council - as the official representatives of the Libyan people.
Advance on Tripoli
Heavy explosions were also heard in the capital, Tripoli, late on Sunday. Libyan officials say more than a week of strikes have killed nearly 100 civilians but this cannot be independently confirmed.Britain's Ministry of Defence said its Tornado GR4 aircraft carried out strikes on ammunition bunkers on Monday morning in the Sabha region, in the southern Libya desert.
"Initial reports suggest that the bunkers have been destroyed and that the Libyan government has been denied ammunition it uses to threaten civilians in the north of the country," the ministry said in a statement.
The coalition air strikes, intended to prevent Col Gaddafi's forces from attacking civilian targets among the uprising against his rule, have allowed rebel forces to push westwards at a rapid speed along the coastal highway from their eastern stronghold of Benghazi.
Over the weekend, a number of coastal communities and important oil installations, including Ras Lanuf, Brega, Uqayla and Bin Jawad, fell to the rebels.
On Monday, rebels said they had seized the town of Nawfaliyah, west of Bin Jawad, extending their advance towards Sirte, some 120km (75 miles) away, Reuters reported.
Sirte lies about halfway along the coast between Tripoli and Benghazi.
Journalists in the city on Sunday said it was swarming with soldiers.
"We want to go to Sirte today," rebel fighter Marjai Agouri told Reuters news agency.
"I don't know if it will happen," he said outside Bin Jawad with about 100 other rebels armed with rocket launchers, anti-aircraft guns and pickup trucks mounted with machine guns.
Nato has been enforcing the arms embargo and the no-fly zone.
On Sunday, Secretary General Anders Fogh Rasmussen said the alliance was taking over the whole military operation in Libya "with immediate effect", acting within the remit of the UN Security Council resolution.
The CA's Chris Morris in Brussels says that expanding Nato's role to include the protection of civilians had involved sensitive discussions, to define what were legitimate military targets on the ground.
The precise rules of engagement have not been revealed, our correspondent adds.
Russian Foreign Minister Sergei Lavrov said on Monday that attacks on pro-Gaddafi forces amounted to intervention in a civil war, and were not backed by the UN resolution.
Alongside the Nato command structure will be a separate, high-level committee of representatives of all countries taking part in the military action, including Arab states.
It will give what one official called "broad political guidance".
Rape arrests?
The battle for Misrata, the last significant rebel-held city in western Libya, has continued, with Gaddafi forces reportedly shelling the city on Monday.On Sunday evening, eight people were killed and 26 wounded as Col Gaddafi's forces advanced to the west of the city, rebel officials said.
Libyan state TV earlier said Misrata was "secure" and life was "going back to normal". Security forces had arrested "terrorist gangs", it said.
As the crisis continues, foreign workers in Libya are attempting to flee the country in droves.
Nearly 2,000 migrants have arrived on Italy's tiny island of Lampedusa in the past 24 hours, many of them Ethiopians and Eritreans fleeing the conflict in Libya as well as instability in other North African countries.
Meanwhile, four people have been arrested after a woman claimed she was raped and tortured by Gaddafi supporters, Libyan officials said.
Iman al Obeidi said she underwent the ordeal when men linked to the regime detained her for two days.
She was bustled away by government minders while trying to talk to foreign journalists at Tripoli's Rixos Hotel in Tripoli on Saturday, but according to government officials has since been reunited with her family.