Nato has accused Libyan leader Col Muammar Gaddafi of using mosques and children's parks as shields as his forces "systematically and brutally" attack the Libyan people.
The statement came in response to Libyan charges that Nato deliberately targeted civilian buildings.
Libya has insisted it is in talks with rebels, despite their denials.
Rebels also say their administration is running out of cash as donors' pledges have not materialised.
"All of these people we talk to, all of these countries, at all these conferences, with their great grand speeches - we appreciate [them] from the political side, but in terms of finances they are a complete failure," the rebels' top oil official Ali Tarhouni told Reuters news agency. "Our people are dying."
'Crime against humanity'
Most of Libya's oil installations are in the rebel-held east but much of the infrastructure has been damaged by war.
On Friday, Libyan Prime Minister al-Baghdadi al-Mahmudi said Nato was using a "new level of aggression".
"It has become clear to us that Nato has moved on to deliberately hitting civilian buildings," he told reporters in the capital, Tripoli. "This is a crime against humanity."
In a strongly worded statement, Nato rejected the accusations.
"We are conducting operations with utmost care and precision to avoid civilian casualties," said Nato spokeswoman Oana Lungescu.
Ms Lungescu also accused Gaddafi and his regime of "systematically and brutally attacking the Libyan people".
She said government forces "have been shelling cities, mining ports and using mosques and children's parks as shields".
Meanwhile, the New York Times reports that US President Barack Obama overruled the advice of administration lawyers in deciding the US could continue participating in the Libya conflict without congressional authorisation.
And in a separate development, Austria has announced it plans to recognise the rebel administration, the Transitional National Council, as the legitimate government of the Libyan people, joining several other countries that have already done so.