The chaos engulfing the oil-rich North African state of 6.3 million has fanned fears that his hold on power could descend into civil war as the United Nations confirmed that nearly 100,000 people have streamed out of the country. The UN Security Council imposed a travel and assets ban on Gadhafi’s regime and ordered an investigation into possible crimes against humanity by the Libyan leader, the first time any such decision has been made unanimously.

A key defector was forming a transitional government to replace Gadhafi’s crumbling regime, which now controls only western areas around the capital and a few longtime bastions in the arid south, witnesses say.

Regime opponents appeared to control the city of Az-Zawiyah, just 50 km west of Tripoli, where thousands took to the streets to denounce the teetering leader in front of journalists on a guided visit.

Witnesses said journalists were welcomed by thousands of demonstrators who gathered at Martyrs Square, shouting “down with the regime, we want freedom”. A number of them were armed and some fired into the air.

No Libyan security services were visible. But the town saw clashes between regime supporters and opponents last Thursday, in which a human rights group said more than 35 people were killed.

Fears of all-out conflict as die-hard loyalists mount a desperate rear-guard action prompted countries to evacuate tens of thousands of citizens and close down embassies, to escape reported gunfire, looting and food shortages.

US President Barack Obama said Gadhafi needs to “leave now”, having lost the legitimacy to rule, in a call echoed by leaders in Britain, Germany and Italy.

“The time has long come for him to leave,” German Chancellor Angela Merkel said, saying a UN Security Council decision against his regime was a signal to all “despots”.

Italian Foreign Minister Franco Frattini said Gadhafi’s downfall was now only a question of time. “It’s inevitable that this will happen... I think we are at a point of no return,” Frattini said.

Britain revoked Gadhafi’s diplomatic immunity and Foreign Secretary William Hague too called on him to stand down, as the “best hope” for Libya.

Residents of the capital Tripoli said banks were open but bread and petrol remained tightly rationed as the rebels’ grip on large swathes of the vast desert nation played havoc with the distribution of basic goods.

The authorities sent out text messages urging families to take up an offer, announced by state television on Friday, of a handout of $400 for every family.

Tanks and all-terrain vehicles driven by regime partisans were patrolling almost deserted neighbourhoods around the city, residents said.

Libya’s former justice minister, Mustafa Abdel Jalil, said a new administration would include commanders of the regular army, much of which has defected, and would pave the way for elections in three months’ time.