Libya could descend into civil war if Muammar Gaddafi refuses to quit, the United States said on Tuesday, its demand for an end to his rule carrying new weight after word of unspecified Western military preparations.

But the veteran Libyan leader remained defiant, sending forces to a western border area amid fears that the most violent Arab revolt may grow more turbulent and trigger a regional humanitarian crisis.

In Moscow, a Kremlin source suggested Gaddafi should step down, calling him a living political corpse who has no place in the modern civilised world, Interfax news agency reported.

In prepared testimony to U.S. lawmakers in Washington, U.S. Secretary of State Hillary Clinton said Libya could become a democracy or face a drawn-out civil war.

In the years ahead, Libya could become a peaceful democracy or it could face protracted civil war, she said.

U.S. Ambassador to the United Nations Susan Rice said Washington would keep pressure on Gaddafi until he steps down, while working to stabilise oil prices and avert a possible humanitarian crisis.

Speaking in a series of interviews on U.S. television, Rice stopped short of saying the Obama administration was ready to impose a no-fly zone over Libya that would prevent Gaddafi from using aircraft against rebels fighting against him.

We are going to keep the pressure on Gaddafi until he steps down and allows the people of Libya to express themselves freely and determine their own future, Rice told ABC television.

Gaddafi appeared unmoved by the outside pressure, and suspicions grew that the veteran leader, a survivor of numerous coup attempts during his rule, did not grasp the unprecedented scale of the forces now gathering against him.

All my people love me, he told the U.S. ABC network and the BBC on Monday, dismissing the significance of a rebellion against his rule that has ended his control over much of eastern Libya, the centre of oil output.

Around the Libyan capital there were queues outside bread shops on Tuesday morning. Some residents said many bread shops were limiting the number of loaves customers could buy, forcing people to visit several to get needed supplies.

The situation is nervous, said Salah, a 35-year-old doctor at one bread shop where about 15 people were queuing outside.

Of course I am worried. My family is afraid. They are waiting at home. We have been hearing gun-fire.

But the people are together. I hope the situation calms down. I am 35 and this is the first time I saw something like this in Libya. It is very scary.

TV SIGNALS REPORTED DISRUPTED

A Tripoli resident said the main state television station, Jamahiriya, was no longer available on its usual satellite channel. He said Libiya, another of Libya's three television stations, which are all state controlled, had told viewers Jamahiriya's signal was being subjected to interference.

It was not clear if the intereference was linked to a campaign, led by Libyan exile groups, to persuade satellite television operators to stop carrying Libyan television.

In the opposition bastion of Benghazi, residents said food and other necessities were in good supply despite the fact that many factories and shops had halted work since the revolt began.

Bank withdrawals were still limited and drivers said petrol, scarce a few days ago, had since returned to good supply.

There have been no problems yet, the crisis is still fresh, said Hassan Ghorfany, 37, who works in a wholesale store selling food in Benghazi, adding that some but not all of his suppliers had stopped working.

On Monday evening the United States said it was moving ships and planes closer to the country and British Prime Minister David Cameron said his government would work to prepare a no-fly zone to protect the Libyan people.

Barely 12 hours later, Libyan forces re-asserted their presence at the remote Dehiba southern border crossing, decorating the border post with green Libyan flags.

Reporters on the Tunisian side saw Libyan army vehicles, and soldiers armed with Kalashnikov rifles. The previous day, there was no Libyan security presence at the border crossing. Dehiba is about 60 km (40 miles) from the town of Nalut.

In another part of the west, residents said pro-Gaddafi forces deployed to reassert control of Nalut, about 60 km from the Tunisian border in western Libya, to ensure it did not fall into the hands of anti-Gaddafi protesters.

A resident of the northern town of Misrata, Mohamed, told Reuters by telephone: We are preparing a mass demonstration for this afternoon at 16:30 (1430 GMT). The town is calm so far.

Misrata has been under the control of anti-Gaddafi rebels for several days, local people say. Witnesses have said that a unit of the paramilitary force led by Khamis Gaddafi, a son of Gaddafi, controls a part of a military airbase outside Misrata.

GADDAFI SCOFFS AT REVOLT

Despite his continued hold on Tripoli, his last remaining stronghold and home to more than 1.5 million people, Gaddafi's power to influence events in his vast desert country has shrunk dramatically in the past two weeks.

Numerous tribal leaders, officials, military officers and army units have defected to the rebels, taking with them swathes of the country of six million including the energy-producing east. Sanctions will squeeze his access to funds.

In Geneva, Russian Foreign Minister Sergei Lavrov called on world powers to fully implement a U.N. Security Council resolution on Libya. The text, adopted on Saturday, includes a freeze on Muammar Gaddafi's assets, travel ban and referring his regime's brutal crackdown to the International Criminal Court.

In another sign diplomacy was moving up a gear, European diplomats said the European Union (EU) would hold a special summit on Libya and North Africa in Brussels on March 11.

Injecting a note of caution into Western military thinking, France said humanitarian aid must be the priority in Libya rather than military action to oust Gaddafi.

In a potential blow to Gaddafi, Libya's National Oil Corporation said Libya's oil output had halved because of the departure of oil workers, although installations were undamaged and NOC was still overseeing Libya's oil production and exports.

REFUGEES' ANGER AT THE BORDER

At Ras Jdir on the border with Tunisia, there was growing frustration from the thousands of Egyptian refugees angry that other nationalities were being transported away from the frontier but they were not.

Some tore branches from trees and waved them around like clubs, and there were arguments with local officials.

Revolutions in neighbouring Tunisia and Egypt have helped to ignite resentment of four decades of often bloody political repression under Gaddafi as well as his failure to use Libya's oil wealth to tackle widespread poverty and lack of opportunity.

Fawaz Gerges, a Middle East expert at the London School of Economics, wrote that the major losers of the wave of Arab uprisings were the autocratic rulers who have bled their societies dry, used blood and iron to suppress dissent, and neglected the hopes and aspirations of their citizens.