(Adds details, quotes from Sirte front, air corridors opened)
* NTC forces say Gaddafi forces in Sirte surrounded in small pocket
* Libya, NATO open air corridors for civilian flights
By Rania El Gamal and Tim Gaynor
SIRTE, Libya, Oct 13 (Reuters) - Fighters loyal to Muammar Gaddafi fought a last-ditch battle in an ever shrinking pocket of resistance in the ousted leader's hometown Sirte on Thursday.
National Transitional Council (NTC) commanders moved up tanks to fire at buildings from close range to try to dislodge the remaining Gaddafi snipers who are now surrounded on all sides in one small part of the city.
"We have control of the whole of the city except neighbourhood 'Number Two' where the Gaddafi forces are surrounded," said Khaled Alteir, a field commander in Sirte.
"This operation is on its dying breath," said another commander, Colonel Mohammad Aghfeer.
The siege of Sirte, which began after the capital Tripoli fell to the NTC two months ago, has held up Libya's transition to normality as the country's new leaders say they will only start building a democratic system after the city is captured.
Efforts to extinguish resistance in Sirte received a big boost on Wednesday when, NTC officials said, government forces captured Gaddafi's son Mo'tassim, a former national security adviser, as he tried to escape the battle-torn city.
"He was arrested today in Sirte," the head of the Tripoli Revolutionary Council, Colonel Abdullah Naker, told Reuters.
Other NTC officials in Benghazi confirmed Mo'tassim had been captured and said he was taken to a military base in the eastern city, but the council has yet to make an official confirmation, or denial of the reports.
Mo'tassim would be the first member of the Gaddafi family to fall into the hands of the new government that emerged after six months of civil war. Gaddafi himself is believed to be hiding somewhere in Libya's vast desert in the south of the country.
Die-hard loyalists to the deposed leader have not given up the fight, answering NTC attacks in Sirte with small arms fire and rocket-propelled grenades. An NTC commander said Gaddafi's besieged forces were no longer using heavier weapons.
Green flags, the banner of Gaddafi's 42-year rule, still fly above many of the buildings in Sirte, but the commander said, the defending forces appeared to have lost their cohesion.
"We've noticed now they are fighting every man for himself," said Baloun Al Sharie, a field commander. "We tried to tell them it's enough and to give themselves up, but they would not."
NTC officers say Gaddafi loyalists fear reprisals if they give themselves up.
Some captured fighters have been roughed up by NTC forces and Amnesty International issued a report on Wednesday saying Libya's new rulers were in danger of repeating human rights abuses commonplace during Muammar Gaddafi's rule. The NTC said it would look into the report.
Close to the centre of the fighting in Sirte, government forces found 25 corpses wrapped in plastic sheets. They accused Gaddafi militias of carrying out execution-style killings. Five corpses shown to a Reuters team wore civilian clothes, had their hands tied behind their backs and gunshot wounds to the head.
As the tanks pounded the apartment blocks where Gaddafi's men are holed up, pick-up trucks mounted with heavy machine guns moved in behind, then infantry armed with AK-47s began their assault.
One field hospital received two NTC dead and 23 wounded on Thursday. One of the dead men had been hit while taking food up to the fighters on the front line, doctors said.
In the skies, NATO aircraft have been carrying out reconnaissance missions and Britain said its jets had bombed and destroyed two pick-up trucks belonging to Gaddafi's forces in Sirte on Wednesday.
But as the battle for Libya draws towards what the NTC and NATO hope will be a close, both the new government and the Western alliance which helped topple Gaddafi are looking towards a return to normality.
The provisional Libyan government and NATO signed an agreement on Thursday to immediately open air corridors for international civilian flights from Benghazi, and domestic flights between the second city and Tripoli and Misrata.
This is one of the first step toward NATO lifting its no-fly zone over Libya imposed after Gaddafi began a military assault on civilians protesting his one-man rule.
German Economy Minister Philipp Roesler said 150 wounded Libyans would be treated in Germany. Berlin plans to support Libya with medical supplies and aid and help in training and educating young Libyans, he said
"We are here because we see the most important raw material of Libya, it is not oil and gas...(it is) the younger people who started the revolution here. They need future and perspective after their victory," Roesler told a news conference in Tripoli. (Additional reporting by Ahmed Seif, Yasmine Saleh and Barry Malone in Tripoli; Writing by Jon Hemming; Editing by Giles Elgood and Andrew Heavens)