Forces loyal to Libyan leader Muammar Gaddafi were massed in the west of the country on Tuesday, residents said, and the United States said it was moving warships and air forces closer to Libya.

Residents feared pro-Gaddafi forces were preparing an attack to regain control of Nalut, about 60 km (38 miles) from the Tunisian border in western Libya, from protesters seeking an end to Gaddafi's rule.

The United States and other foreign governments discussed military options on Monday for dealing with Libya as Gaddafi scoffed at the threat to his government from a popular uprising.     

US ambassador to the United Nations Susan Rice said Gaddafi was "disconnected from reality", was "slaughtering his own people" and was unfit to lead.

She said Washington was in talks with its Nato partners and other allies about military options. The United States also said about $30 billion in assets in the United States had been blocked from access by Gaddafi and his family.

British Prime Minister David Cameron said his government would work to prepare for a "no-fly" zone in Libya to protect the people from attacks by Gaddafi's forces.

Gaddafi rejected calls for him to step down and dismissed the strength of the uprising against his 41-year rule that has ended his control over eastern Libya and is closing in on the capital Tripoli.

"All my people love me. They would die to protect me," he told the US ABC network and the BBC on Monday.      He denied using his air force to attack protesters but said planes had bombed military sites and ammunition depots.

He also denied there had been demonstrations and said young people were given drugs by Al Qaeda and therefore took to the streets. Libyan forces had orders not to fire back at them, he said.

Gaddafi, 68, looked relaxed and laughed at times during the interview at a restaurant on Tripoli's Mediterranean coast. 

As the uprising entered its third week, the situation on the ground was often hard for reporters to assess due to the difficulties of moving around some parts of the desert nation and the patchy communications.      

A Nalut resident, Sami, told Reuters by telephone: "They have surrounded the area near the Tunisian border ... They came with heavy machine guns mounted on four-wheel drive vehicles and dozens of armed men equipped with light weaponry. 

"They said they came to hunt down the thugs. But the people of Nalut are not buying this. Everybody is on alert for a possible attack by the same forces to retake the city."     

Another Nalut resident, who declined to be named, said he had heard Libyan soldiers had moved to the border with Tunisia. "There was no fighting in Nalut. They passed it and went to the border, around the area of Wazin. People do not know what will happen here," he said.     

Reporters on the Tunisia side of the border said Libyan army units appeared in the late afternoon on Monday and announced the frontier was closed.     

On Monday, witnesses in Misrata, a city of half a million people 200 km (125 miles) to the east of Tripoli, and Zawiyah, a strategic refinery town 50 km (30 miles) to the west, said government forces were mounting or preparing attacks. - Reuters