* Seven rebels die in renewed shelling
* French Foreign Ministry: No talks with Gaddafi
* Differences widening inside Western alliance
(Updates rebel death toll)
By Nick Carey and John Irish
MISRATA/PARIS, July 11 (Reuters) - Libyan rebels dug into defensive positions and took more casualties on Monday, stalled in their advance towards Tripoli in a slowing campaign that is starting to irk NATO allies.
Shelling by forces loyal to Muammar Gaddafi, which has stopped the insurgents' latest advance in the west, killed eight rebel fighters and injured 25, according to hospital sources in the rebel stronghold of Misrata
France expressed impatience over the weekend at the inability to reach a political solution to the crisis after months of static fighting, and stepped up pressure on rebels to negotiate an end to the conflict.
But French Foreign Minister Alain Juppe said on Monday the NATO-led alliance still needed to keep up its military pressure on Gaddafi's army and reiterated that his stepping down was a necessary condition for an end to the conflict.
France also denied comments by one of Gaddafi's sons that it was in direct talks with the Libyan leader's government.
At one of Libya's two major front lines, Misrata, rebels were dug into defensive positions and conserving ammunition, getting ready to push against pro-Gaddafi forces in the neighbouring town of Zlitan.
Zlitan is the first in a chain of coastal towns blocking the rebels on a westward march to the capital, Tripoli.
"Right now we are just waiting for ammunition and getting ready to go, but in my opinion if we had more ammunition we could already be in Zlitan," said rebel fighter Ali Bashir Swayeba, a 29-year-old dentist.
A Reuters team near the front reported bursts of fire and an occasional explosion of a Grad rocket.
At one point a group of children played soccer, although that was interrupted by nearby Grad explosion.
The rebels have refused to hold talks as long as Gaddafi remains in power, a stance that before now none of NATO's major powers had publicly challenged.
Gaddafi has been holding on to power in the face of rebel attacks trying to break his 41-year rule, NATO air strikes, economic sanctions and the defections of prominent members of his government.
A son of the Libyan leader, Saif al-Islam, told Algerian newspaper El Khabar in an interview on Monday that Gaddafi's government was in talks with the French government.
Speaking from Tripoli, he said, "The truth is that we are negotiating with France and not with the rebels."
"France said: 'When we reach an agreement with you (Tripoli), we will force the (rebel) council to cease fire'," he was quoted as saying.
France's Foreign Ministry denied it was in talks with Gaddafi's government.
NATO launched its bombing campaign in March after the U.N. Security Council authorised the use of all necessary means to protect civilians who rose up against Gaddafi.
With the conflict stalemated, cracks are emerging within the NATO alliance. Some member states are balking at the burden on their recession-hit finances, and many are frustrated there has been no breakthrough.
But even countries that support a political solution have not explained how a deal can be reached when the rebels and their Western backers say Gaddafi must go, while the Libyan leader says that is not up for negotiation.
Strains over Libya are expected on Friday when the contact group, which brings together the countries allied against Gaddafi, meets in Istanbul.
There was no immediate reaction to the French minister's comments from the rebel leadership at its headquarters in the eastern Libyan city of Benghazi.
Rebel forces trying to march on Tripoli have made modest gains in the past week, but the fighting on Monday underlined it would be a long slog.
In the Western Mountains region southwest of Tripoli, rebels again came under fire from Gaddafi's forces. A rebel spokesman in Nalut, Mohammed, said rebels were able to destroy two houses used as ammunition warehouses near Libya's border with Tunisia.
Gaddafi's forces launched a heavy artillery bombardment to try to push back rebel fighters who last week seized the village of Al-Qawalish, 100 km (60 miles) south of Tripoli.
Al-Qawalish is a strategic battleground because if the rebels manage to advance beyond it, they will reach the main highway leading north into Tripoli.
During a 20-minute period while Reuters visited the front line east of Al-Qawalish, at least five shells landed. They did not appear to be well targeted.
Libyan state television reported on Sunday that NATO forces had struck an "educational institution" in Tripoli. Jamahiriyah Television quoted a military spokesman as saying there were "human and material" casualties in the air strike in the district of Tajoura, but gave no specific details.
Gaddafi says the rebels are armed criminals and al Qaeda militants. He has called the NATO operation an act of colonial aggression aimed at stealing Libyan oil. (Additional reporting by Lamine Chikhi in Tripoli, Peter Graff in Al-Qawalish, Hamid Ould Ahmed in Algiers; Writing by Giles Elgood; Editing by Alison Williams)