A military aircraft has crashed in Benghazi, where rebels claim Libyan forces are mounting attacks despite a ceasefire being announced yesterday.
Colonel Gaddafi's government has repeatedly denied mounting ground and air assaults - but if the claims are verified it may trigger UN-backed retaliatory military action.
British Prime Minister David Cameron is due to discuss a military response with the US and other allies at a meeting in Paris later today.
The pilot of the fighter, believed to be a Russian-built MIG-23, was seen to eject moments before a large plume of black smoke rose above Benghazi's southern skyline.
And Libyan spokesman Ibrahim Moussa said Gaddafi's regime remains defiant about the threat of military action.
Reading from a letter sent by the dictator to Mr Cameron, French president Nicolas Sarkozy and the UN secretary general, he said: "You will regret it if you take a step towards intervening in our internal affairs, in our country.
"The UN security council is not authorised, according to the UN charter, to intervene in the internal affairs of any country."
Once more, Col Gaddafi insisted the rebels are Islamists and said in the statement: "We are fighting al Qaeda, in what they call the Islamic Maghreb."
Mr Moussa also denied it was a government plane that crashed in Benghazi.
Sky's Hurd said suspicions have now been raised that the jet was a rebel-flown, stolen aircraft hit as it sought out Gaddafi's forces on the outskirts of Benghazi.
"There is still some confusion over that but what is clear is that despite claims of a ceasefire there still is fighting and it seems to be led by his forces," Hurd said.
Mr Musa also denied government forces shelled any Libyan towns today, saying the rebels are the ones breaking the ceasefire by attacking military forces.