The Tripoli Post said National Transitional Council fighters reportedly occupied the center of the southern city in the Sahara desert and had taken control of all but one district of Sabha.
"We are in complete control of the city of Sabha, apart from the al-Manshiya district. This is still resisting, but it will fall," NTC military spokesman Ahmed Bani said.
Sabha had been a holdout for Gadhafi loyalists, along with Bani Walid and his hometown of Sirte, since the capital city of Tripoli fell Aug. 23.
NTC fighters had taken control of the Sabha airport and other parts of the city Monday.
Save for pockets of resistance, the NTC's Abdelmajid Seif Ennasr said, "everybody, including (those who had been) pro-Gadhafi, are now with the revolution."
The Post said the city occupies a strategic location because it's the last notable Libyan town before the country opens into the desert, an escape route for some members of Gadhafi's family.
Earlier reports said Gadhafi and his son Saif al-Islam may be hiding out in Sabha, but NTC fighters say they've seen no sign of them.
With Sabha under control of NTC fighters, they can now turn their attention to the remaining Gadhafi strongholds, Bani Walid and Sirte.
Meanwhile, a United Nations team established to investigate rights violations in Libya expressed concern over allegations many black Africans were being illegally detained in the country.
There have been reports in recent weeks of the mass arrest of black Africans suspected of being pro-Gadhafi mercenaries, Philippe Kirsch, a member of the International Commission of Inquiry on Libya, told the Human Rights Council.
And Amnesty International on Tuesday criticized the European Union's response to the refugee crisis on Libya's borders caused by the recent Arab Spring uprisings and called on EU states to "urgently address" the situation by opening their borders to mostly sub-Saharan refugees forced to leave their homes.
"We have witnessed an abysmal response to the plight of displaced refugees on Europe's doorstep," said Nicolas Beger, director of Amnesty International's European Institutions Office.
The human rights group said an estimated 5,000 refugees live in poor conditions along the Egyptian and Tunisian borders with Libya and face persecution if they return to their homes.
The African Union called on the NTC to protect African migrant workers after reports black Africans were being targeted by militia units. The African Union has officially recognized the NTC as Libya's government.