Yafran had been besieged by pro-Gaddafi forces for more than a month with food, drinking water and medicines running short.
"The rebels say that they have taken the town," said Reuters photographer Youssef Boudlal, after entering the town from the north. "There is no sign of any Gaddafi forces."
Yafran, about 100 km (60 miles) southwest of the Libyan capital, is in the Western Mountains where the local population -- most of them belonging to the Berber ethnic minority -- have risen up against Gaddafi's 41-year rule.
The rebels control the east of Libya, the western city of Misrata and the range of mountains near the border with Tunisia. Their attempts to advance on the capital have been blocked by Gaddafi's better-equipped forces.
It was unclear if pro-Gaddafi forces remained in the south of Yafran.
"I can see the rebel flags ... We have seen posters and photos of Gaddafi that have been destroyed," Boudlal said.
British warplanes destroyed two tanks and two armored personnel carriers on June 2 in Yafran.
Towns the length of the mountain range have come under attack by pro-Gaddafi forces. Residents who fled said Yafran had suffered some of the worst hardship.
APACHES ATTACK
NATO attack helicopters were in action for a second day on in the east on Sunday, Britain's defense ministry said. Its Apache helicopters used missiles to destroy a rocket launch system on the coast near the eastern town of Brega.
The new deployment of the helicopters is part of a plan to step up military operations and break the deadlock in Libya. Critics say it means NATO has gone far beyond its United Nations mandate to protect civilians from attack.
Britain, along with France, has been the driving force behind the NATO military intervention. British Foreign Minister William Hague traveled to Benghazi at the weekend and called on the rebel National Transitional Council (NTC) to establish a detailed plan for how they it will run Libya after Gaddafi's departure, to avoid the kind of chaos unleashed in Iraq.
"We're encouraging the NTC to put more flesh on their proposed transition -- to lay out in more detail this coming week what would happen on the day that Gaddafi went -- who would be running what, how would a new government be formed in Tripoli?" he said.
Western governments and rebels say a combination of NATO air strikes, diplomatic isolation and grassroots opposition will eventually bring an end to the Libyan leader's rule.
Gaddafi says he has no intention of stepping down. He insists he is supported by all Libyans apart from a minority of "rats" and al Qaeda militants and says the NATO intervention is designed to steal Libya's abundant oil.
"ROLLOVERS" COULD GO ON
NATO last week decided to extend operations in Libya for another 90 days, or until the end of September.
"We are going to do this until we succeed. Ninety days is a rollover. If we need to roll it over again we will roll it over again," a senior U.S. official said in Brussels. "We are not setting any timelines. What the rollover did, it made it clear we are prepared to be in this until the end."
The Libya contact group of Western and Arab countries agreed in May to provide millions of dollars in non-military aid to help the rebels keep services and the economy running.
They meet on Thursday in the United Arab Emirates to discuss the rebel transition road map and make "concrete announcements," a Western diplomatic source said.
The contact group includes three veto-wielding permanent members of the U.N. Security Council -- the United States, Britain and France -- and Italy, Qatar, Kuwait and Jordan.
In Tripoli, the government condemned Hague's visit to the rebel headquarters as a violation of Libya's sovereignty.
Gaddafi's aides brought foreign media to a hospital on Sunday to see a baby they described as a wounded victim of a NATO air strike.
A hospital staff member, in a note passed to a journalist, said the infant had in fact been injured in a car accident.
Libyan officials were not available to comment on the note. Spokesman Moussa Ibrahim's telephone was not answered.
Gaddafi's government says more than 700 civilians have been killed and more than 4,000 wounded by NATO air strikes. However, the media team has not shown foreign reporters based in Tripoli any evidence of large numbers of civilian casualties.