By Hadeel Al Shalchi and Ghaith Shennib
TRIPOLI/BENGHAZI, Libya (Reuters) - The Libyan army and allied militias have seized control of strategic buildings in the former Gaddafi stronghold of Bani Walid, a military spokesman said on Tuesday, as Libya marked the first anniversary of its "liberation" from Muammar Gaddafi.
Thousands have fled the violence in the isolated hilltop town, which was one of the last to surrender to rebels last year, and has been at the center of a bloody standoff this month between rival militias whose ferocity has underscored the extent of instability in the North African country.
Colonel Ali al-Shekhili said the army, which was backed by a group of militias known as "Libya's Shield" who are loyal to the defense ministry, had pushed into the center of Bani Walid some 170 km (105 miles) south of Tripoli.
"Our forces reached the center of the city and are in control of the airport, hospital and other important places," he said. "We faced very little resistance, and shelling of the city will only continue if there is resistance."
Pro-government forces moved up to Bani Walid this month after rebel fighter Omran Shaban died after two months in detention there. Shaban, from the rival city of Misrata, was the man who found Gaddafi hiding in a drain pipe outside Sirte.
Libya's congress ordered the Defense and Interior Ministries to find those suspected of abducting, torturing and killing Shaban, and gave Bani Walid a deadline to hand them over.
The siege of Bani Walid highlighted the government's inability to reconcile groups with long-running grievances, as well as its failure to bring many of the militias that deposed the late dictator fully under its control.
"The militias have entered the suburbs with bulldozers and have begun to demolish homes without reason," Abdel-Hamid Saleh, a member of a Bani Walid civil society group, said by phone. "A woman called me yesterday screaming 'They have come for me, they have come for me' in fear. The city is falling on our heads."
Libya was declared "liberated" a few days after Gaddafi's death on October 20, 2011, and while its new rulers have held elections, they have struggled to impose their authority on a country awash with weapons.
"Our happiness is not complete because there are still some cities that are not fully liberated," said 27-year-old Benghazi shop assistant Baset al-Sharif.
"But October 23 is still a great day and we will celebrate. We will use this occasion to say Benghazi has not yet been given all its rights. The government still has problems to deal with."
Hundreds of people filled Benghazi's streets celebrating the anniversary but also called for the eastern city, the cradle of last year's revolt, to become Libya's economic capital after what they said were decades of neglect under Gaddafi.
About 300 people protested outside a hotel over the Bani Walid violence. Blocking off the street, some chanted: "Where are the Libyans when this massacre is happening?"
In Tripoli, the celebratory mood gained pace in the evening as cars flying the Libyan flag and playing patriotic music, filled the streets amid tightened security. Fireworks lit up the sky over Martyr's Square, where hundreds of families gathered.
"We want to express our feelings of happiness that we have never felt this strongly before," said Tripoli resident Muna Abdelsalam, who came to the square with her daughters. "A revolution is going to be difficult and will have problems, but despite the insecurity we are better off today than a year ago."
(Writing by Marie-Louise Gumuchian; Editing by Andrew Osborn)