Gunfire and explosions have been heard around the town's hills and valleys, 180km (110 miles) south of Tripoli.
On Thursday, fighters entered the outskirts of Sirte, another Gaddafi bastion, but were forced back after sustaining casualties.
Meanwhile, Turkish PM Recep Tayyip Erdogan has arrived in Libya's capital.
It is part of a tour asserting Ankara's regional influence and promoting democracy.
His visit comes a day after crowds in Benghazi cheered UK PM David Cameron and French President Nicolas Sarkozy, the first foreign leaders to visit since Col Muammar Gaddafi was ousted.
Libyan fighters loyal to the country's interim authorities, the National Transitional Council (NTC), have already seized a valley leading into Bani Walid following their push on Friday, Reuters news agency reported.
Last week the anti-Gaddafi forces said they were hours from taking Bani Walid, which has been under siege for several weeks, but were driven back after encountering fierce resistance from what were thought to be several hundred fighters loyal to Col Gaddafi.
NTC fighters are facing resistance in a handful of pro-Gaddafi bastions, including the desert town of Bani Walid, the southern outpost of Sabha and Sirte, Col Gaddafi's birthplace.
On Thursday evening, fighters breached defences south and west of Sirte, about 8km (5 miles) from the centre, but met heavy resistance, the NTC said.
An NTC spokesman told the BBC that fighters had been forced to retreat about two kilometres to treat casualties following their incursion into the outlying areas of the city, where they reportedly clashed with snipers in a high-rise tower and an elite unit of pro-Gaddafi troops.
The anti-Gaddafi fighters advancing on Sirte - made up of battalions from Misrata, 200km (120 miles) to the west - suffered at least four deaths and seven wounded, although a report quoting the Misrata Military Council said 11 were killed and 34 hurt.
On Friday, the NTC is to send a delegation to neighbouring Niger in an effort to recover gold and cash believed to have been taken out of Libya by fleeing Gaddafi loyalists.
At least 36 members of the fugitive leader's inner circle, including relatives and generals, have fled to neighbouring Algeria and Niger since Tripoli fell to NTC forces last month.
NTC chairman Mustafa Abdul Jalil said Libya would also ask for the handover of individuals wanted by the International Criminal Court (ICC). The ICC has indicted Col Gaddafi, his son Saif al-Islam and his intelligence chief for crimes against humanity.
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