"They are asking us to withdraw from our own cities. .... If this is not mad then I don't know what this is. We will not leave out cities," said Mussa Ibrahim, the government spokesman, on Friday.
Fighting raged on Friday near the key oil town of Brega, in the country's east, and the towns of Misurata and Az Zintan in the west.
Earlier, the opposition had said it would agree to a ceasefire as long as Gaddafi pulled his military out of opposition-held cities and allowed peaceful protests against his government.
Mustafa Abdul-Jalil, head of the opposition's interim governing council based in Benghazi, spoke during a joint press conference on Friday with Abdelilah Al-Khatib, the UN envoy. Al-Khatib is visiting the rebels' de facto stronghold of Benghazi in hopes of reaching a political solution to the crisis embroiling the North African nation.
Abdul-Jalil said the rebels' condition for a ceasefire is "that the Gaddafi brigades and forces withdraw from inside and outside Libyan cities to give freedom to the Libyan people to choose and the world will see that they will choose freedom".
The UN resolution that authorised international air strikes against Libya called for Gaddafi and the rebels to end hostilities. Gaddafi announced a ceasefire immediately but has shown no sign of heeding it. His forces continue to attack rebels in the east, where the opposition is strongest, and have besieged the only major rebel-held city in the west, Misurata.