The extent of Gadhafi's control over the country he has ruled for 41 years had been reduced to the western coastal region around Tripoli, the deserts to the south and parts of the center.
The opposition said Wednesday it had taken over Misrata, Libya's third largest city.
Several high-profile military defections and abstentions have added to Gadhafi's loss of control. Two Libyan air force pilots reportedly parachuted from their jet, letting it crash into the desert in the eastern part of the country. The pilots had been ordered to bomb a city held by opposition protesters.
Other military personnel have defied orders to fire on crowds. Army units in many places have sided with the rebellious protesters.
Reports of the civilian death toll in the country vary from 300 to 1,000.
Further rallies were planned for Thursday and Friday, including large gatherings in the capital city of Tripoli, Gadhafi's stronghold.
Militiamen and Gadhafi supporters - a mix of Libyans and foreign African fighters bused in - roamed the capital's main streets, called up by the Libyan leader in a fist-pounding speech the night before in which he vowed to fight to the death. The gunmen fired weapons in the air, chanting "long live Gadhafi" and waving green flags. With a steady rain all day long, streets were largely empty, residents said.
In many neighborhoods, residents set up watch groups to keep militiamen out, barricading their streets with concrete blocks, metal and rocks and searching those trying to enter, said a Tripoli activist.
"Mercenaries are everywhere with weapons. You can't open a window or door. Snipers hunt people," said another resident, who said she had spent the last night in her home awake hearing gunfire outside. "We are under siege, at the mercy of a man who is not a Muslim."
Across their territory, they have been setting up their own jury-rigged self-administrations. In many places, committees organized by local residents, tribes and mutinous army officers were governing, often collecting weapons looted from pro-Gadhafi troops to prevent chaos.
International alarm has risen over the crisis, and is sending oil prices soaring and European and other countries scrambling to get their citizens out of the North African nation. On Wednesday, oil prices hit $100 per barrel for the first time since 2008. Libya is the world's 15th largest exporter of crude, accounting for 2 percent of global daily output. Traders are worried the revolt could threaten Libya's oil production and spread to other countries in the region.
President Barack Obama on Wednesday condemned the violence in Libya as "outrageous ... and unacceptable" and said he was dispatching Secretary of State Hillary Rodham Clinton to Geneva for international talks aimed at stopping the violence.
Obama said he was studying a "full range of options" to pressure Gadhafi's regime to halt attacks against Libyans
The U.N. Security Council held an emergency meeting that ended with a statement condemning the crackdown, expressing "grave concern" and calling for an "immediate end to the violence" and steps to address the legitimate demands of the Libyan people.
The Associated Press contributed to this report.