Muammar Gaddafi's remaining loyalists are set to reject a surrender-by-Saturday ultimatum in their leader's home town.

The ultimatum was issued by Libyan rebels who say they are closing in on Gaddafi and warned pockets of his loyalists in Sirte to surrender by the weekend or face attack.

In a phone call to Associated Press, Gaddafi's chief spokeman, Moussa Ibrahim, said: "No dignified honourable nation would accept an ultimatum from armed gangs."

He repeated Gaddafi's offer to send the former dicator's son, al-Saadi, to negotiate with the Libyan rebels and try to form a transitional government.

Ibrahim also insisted that 12 missiles which hit Sirte had killed 1000 people and left many more injured during public prayers marking Eid – although the regime has consistently exaggerated casualty and attack claims.

The rebels are also demanding Algeria return Gaddafi's wife and three of his children who fled there on Monday. They insist the granting of asylum to Gaddaf and his family is "an enemy act".

Meanwhile, it is being claimed that a prime suspect in the 1984 murder of WPC Yvonne Fletcher has been found alive by the rebels.

Matouk Mohammed Matouk, the only one of three main suspects known to be still alive, reportedly tried to defect to the National Transitional Council as Tripoli fell ten days ago.

The new government has confirmed that it knows the whereabouts of Matouk, a former minister under Gaddafi, according to the Daily Telegraph.

The discovery of Matouk comes as another suspect in WPC Fletcher’s murder, Abdulgader Baghdadi, was found shot dead in the chaos of Tripoli.

He was said to have helped plan the response of Libya’s London embassy to the demonstration outside which led to shots being fired and killing the 25-year-old police officer.