"Bani Walid is completely free. It is liberated, 100 percent," said Mohammed Shakonah, a military commander with the National Transitional Council (NTC).

The apparent capture of Bani Walid brought Libya's new rulers a step closer to being in full control of the vast, oil-producing North African country almost two months after rebels entered Tripoli and ended 42 years of one-man rule by Gaddafi.

Along with Gaddafi's home town of Sirte, Bani Walid was one of Libya's last sources of armed resistance to the NTC.

An NTC fighter in camouflage fatigues and with an AK-47 assault rifle hanging from his shoulder, embraced a medical worker and both men wept in joy.

There was no evidence of civilians joining in the street celebrations in Bani Walid, home to the Warfalla, Libya's biggest tribe, whose members are traditional supporters of Gaddafi.

The town had been under siege for weeks, with hundreds of Gaddafi loyalists dug into its steep valleys and hills resisting advancing interim government forces.

NTC officials had been negotiating with Bani Walid's tribal leaders for its surrender.