Islamic State fighters retreated from long-held positions around the port city of Derna on Wednesday, military forces in eastern Libya said, as troops loyal to the government in the region pressed on with an offensive in Benghazi.
If the retreat around Derna is confirmed, it could mark a significant shift in the alignment of forces in the area.
Islamic State gained territory in Libya as two rival governments and a range of armed factions battled to control the country in the past two years. But it has also faced resistance from other local armed groups on the ground.
Derna has a history of Islamism and was an early bastion for Islamic State. The militant group lost control of the city last June to rival armed Islamists grouped under the Derna Mujahideen Shura Council, but retained positions around the outskirts.
Derna and its suburbs had been "completely liberated from the apostates," the council said in a statement.
Eastern security forces, which are allied to a government based in the east, have carried out occasional strikes against Islamist rivals around Derna in recent months.
Military spokesman Abdulkarim Sabra said Islamic State had retreated from Derna's 400 neighborhood and al-Fatayeh, 20 km (12 miles) south of the city, and its forces were trying to head towards the militant group's Libyan stronghold of Sirte when they were intercepted.
The military was providing air support for troops, he said. There were no immediate reports of casualties.