Libya's government spokesman says that a coordinated land, sea and air attack by rebels and NATO forces against the eastern oil city of Brega was repulsed.
Moussa Ibrahim told journalists late Thursday that NATO forces attacked government positions at Brega by both sea and land, while rebels attacked from the ground.
He said the attack was repulsed but described the close combat coordination of NATO and the rebels as a "dangerous development."
NATO is carrying out a U.N.-sanctioned campaign against Libyan government forces to protect civilians.
Rebel forces in the country's eastern half have been stuck outside Brega for months, unable to take the strategic oil terminal.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
TRIPOLI, Libya (AP) _ Libya on Thursday barred Italy, one of the country's largest investors, from its oil sector because of Rome's role in the NATO airstrikes on the country, a move that raised serious questions about investments by Italian oil giant ENI SpA in the OPEC member state.
In Moscow, meanwhile, a Russian newspaper quoted the Kremlin's special envoy to Libya as saying Moammar Gadhafi has threatened to blow up Tripoli if the Libyan capital falls into rebel hands. Mikhail Margelov told the Izvestia newspaper that Libyan Prime Minister Al-Baghdadi al-Mahmoudi recently told him, "If the rebels seize the city, we will deluge it with missiles and blow it up."
"I presume that the Gadhafi regime has a suicidal plan of this kind," Margelov told the newspaper.
The Canadian general commanding NATO's mission in Libya said Gadhafi is telling his forces to destroy facilities _ including fuel refineries _ as they retreat.
But the troops are not necessarily carrying out the order, Lt. Gen. Charles Bouchard cautioned Thursday.
"Let's be clear, just because Gadhafi has given a direction, it does not mean that direction is being undertaken by his own troops," he told reporters in a conference call from Naples, Italy.
The civil war in Libya appears to have hit a stalemate, despite a protracted NATO bombing campaign against Gadhafi-loyal forces under a U.N. mandate on protecting civilians. On Wednesday, NATO reported carrying out 50 strikes, including against missile launchers near Tripoli.
Rebels control eastern Libya and pockets in the west, while Gadhafi is holding on to Tripoli and large stretches of western Libya.
Rebels reported retaking the western mountain village of Qawalish, 70 miles (120 kilometers) from Tripoli, from government forces Thursday after losing it the day before, in the seesaw battles that have become typical on the various fronts. They also said one fighter was killed on the eastern front.
Libyan government spokesman Moussa Ibrahim scoffed at various reports of rebel successes, saying their few advances were only when Gadhafi's forces temporarily withdraw to avoid air strikes.
"As we withdraw, the 150 joyous rebels go dancing around with some reporters with them," Ibrahim said. "And the moment when NATO doesn't have enough rockets or bombs, the army moves back in kills 20 or 30 rebels, and we have the town again."
Libyan officials have warned nations involved in the NATO campaign that they could be barred from investing or participating in the country's oil sector if they continue to side with the rebels. But Italy _ Libya's former colonial master _ appears to be the first country to be formally barred.
"The Italian government needs to totally forget about Libyan oil and every agreement we signed in the past," al-Mahmoudi, the prime minister, told reporters in the Libyan capital. "ENI will have to look elsewhere for business."
There seem to be no immediate repercussions for ENI, the largest foreign energy company in Libya, since oil production in Libya has essentially shut down. It has been months since ENI shut oil production and a pipeline bringing natural gas from Libya to Italy. However, the company continued to produce natural gas for electricity to supply the Libyan population.
Currently ENI's assets are nearly evenly divided between rebel-held and government-held territory, excluding offshore sites. ENI had no comment.
The Libyan prime minister said Libya was already in negotiations with Russian, Chinese and even American companies for future oil deals. He said Italy was specifically targeted because of Italian Prime Minister Silvio Berlusconi's once-close relationship with the North African nation and a friendship pact signed by the two nations.
"To add insult to injury, Berlusconi says he never agreed to the aggression and was pushed to participate," said al-Mahmoudi, referring to Berlusconi's July 7 comments that the Italian parliament forced his hand.
"Well, if he says he was pressured to attack Libya, then I was pressured by the Libyan people to cut ties with Italy," al-Mahmoudi said.
Italy's position is that the treaty is "suspended" as a result of the Libyan regime's attacks on its own population.
Despite the U.S.'s leading role in the attacks and Secretary of State Hillary Rodham Clinton's recent remarks that Gadhafi's days were numbered, the prime minister specifically left the door open to U.S. companies because its role in the campaign is largely restricted to logistics.
"(America) reviewed its position and its participation has been much weaker and this helps the U.S. with its relationship with Libya," al-Mahmoudi said. "That's why were are prepared to work with the U.S. in the oil industry."
Libya sits atop Africa's largest proven reserves of conventional crude. But months of fighting between pro-Gadhafi forces and the rebels have essentially halted what was once about 1.6 million barrels per day of oil output _ a drop that helped propel crude prices well beyond $100 per barrel earlier in the year.
In the years since Libya re-emerged from more than a decade of international isolation for Tripoli's support of terrorism, Western oil giants rushed to tap into the country's reserves.
ENI produced 273,000 barrels of oil and natural gas in 2010, about 15 percent of the company's worldwide production.
Italian officials said its contracts would be guaranteed by the "legitimate representatives of the Libyan people," a veiled reference to the rebel transitional council, which it has recognized.
ENI CEO Paolo Scaroni has frequently expressed confidence that the Italian energy producer would continue operations in Libya after the civil war, due to the country's dependence on oil and natural gas production as a source of foreign currency.
If the Libyan government wins the conflict and regains control of oil production, any move to cut ENI out would put it in violation of international contracts, which could mean long and costly legal battles.
The outbreak of fighting in February led to new international sanctions that targeted, among other things, Libya's oil sector. International companies have largely pulled out their foreign workers and fields are idling well below their production capacity because of the exodus of workers.
Associated Press writers Alessandra Rizzo in Rome, Colleen Barry in Milan, Ben Hubbard in Cairo and David Nowak in Moscow contributed reporting.