Forces supporting Libya's internationally recognized government pushed back troops loyal to Khalifa Haftar to more than 60 km southwest of the capital Tripoli on Tuesday, Reuters reporters said.
The town of Aziziya was fully under the control of the Tripoli forces, with shops reopening after days of fighting, a Reuters team at the scene said.
Haftar's Libyan National Army (LNA), which is allied to a rival government in eastern Libya, mounted an offensive on the capital almost three weeks ago but despite heavy fighting last week it has failed to breach the city's southern defenses.
In recent days, forces backing the Tripoli administration have pushed back the LNA in some areas.
But fighting still raged in some southern suburbs on Tuesday, with shelling heard throughout the day even in central Tripoli, residents said.
The Reuters team driving south of Aziziya through villages on the road to Al-Hira saw several burnt-out cars belonging to Haftar's forces and five dead fighters.
The Reuters reporters made it to about 25 km (16 miles) from Gharyan, the forward base for Haftar's offensive to take Tripoli. The town could still be a challenge to recapture as it lies in the mountains starting after Al-Hira.
One tired-looking LNA prisoner sat on the back of a pickup truck. The Tripoli forces had also seized two Soviet-made tanks from the arsenal of former ruler Muammar Gaddafi, one of them heavily damaged.
As the Reuters team was about to leave, rockets were fired nearby from LNA positions.
According to United Nations figures 264 people, including 21 civilians, have been killed by the fighting since April 5 and 1266 wounded, including 69 civilians. About 32,000 civilians have fled their homes for safer areas.
The latest military action is a setback to Haftar's plans, however, the front remains fluid and his fortunes could change again. Both sides have gained and lost territory within days or even hours.
If a ceasefire is called as demanded by the United Nations, the LNA would have still gained a considerable amount of territory.