* Defence minister agrees to tribal-based local government
* Locals complain of harassment, say not pro-Gaddafi
* NTC militias said to be on outskirts (Adds elders, defence ministry comments)
TRIPOLI, Jan 25 (Reuters) - Libya recognised a tribal-based local government in the former Gaddafi stronghold of Bani Walid on Wednesday, illustrating the power of tribal leaders over the fragile interim government.
Fighters from the Warfallah tribe -- the dominant tribe in Bani Walid and the most populous in Libya -- drove out a pro-government militia from the town this week.
Salah al-Maayuf, a member of the Warfallah Elders Council in Bani Walid, said his tribal body appointed a new local council on Tuesday and that Defence Minister Osama al-Juwali recognised the body during all-day talks on Wednesday.
“The defence minister told us that if we, as a tribe, believe that the new local council in Bani Walid will work, then we have convinced him that it can,” Maayuf told Reuters from Bani Walid, a bastion of support for former leader Muammar Gaddafi during last year’s rebellion.
“We told him that we want to keep the whole country peaceful and that national unity was a priority,” Maayuf added.
An official at the defence ministry confirmed that Juwali had accepted the new council, but did not give further details.
Juwali is a member of the provisional government installed in November by the National Transitional Council (NTC), the self-appointed body which won Western backing in the uprising that ousted Gaddafi in August.
On Monday, armed residents attacked the barracks of the NTC force in the town, killing four fighters by the account of the government militia, and forcing the unit to retreat to beyond the desert city’s limits. Eight of the town’s residents were also killed, doctors at the hospital said.
Echoing complaints by residents that the NTC fighters had been harassing people, making arrests and abusing prisoners, the town’s elders said on Tuesday they did not want any interference from the Tripoli authorities and dismissed the local NTC council.
The unrest will heighten doubts about the NTC’s ability to bring order and establish control over armed groups - goals crucial to rebuilding oil exports and securing Libya’s vast desert borders in a region where al Qaeda is active.
Bani Walid, in Libya’s Western Mountains 150 km (90 miles) south of Tripoli, was one of the last towns to surrender to the anti-Gaddafi rebellion last year. But residents reject accusations from NTC fighters that they remain loyal to Gaddafi.
After Gaddafi was captured and killed in October, one of his sons, the now captive Saif al-Islam, staged his last stand in Bani Walid before fleeing into the Sahara.
Reuters reporters who toured Bani Walid on Tuesday saw no signs of the Gaddafi-era green flags which NTC supporters said had been hoisted over the town following the retreat of the pro-government militia.
Some pro-Gaddafi graffiti remains in the town, but the most common banners flying were the red, green and black tricolour of the NTC.
Bani Walid is not alone. Towns and cities across Libya are being run with little reference to central authority. In a number of areas tensions have emerged between groups which were nominally allies in the revolt.
Abdul Azziz al-Jmaili, a resident of Bani Walid, said government forces were around the town to prevent escalating fighting.
Speaking to Reuters by telephone, Jmaili said a “peacekeeping force” comprised of units of former rebel fighters loyal to the NTC and drawn from other towns in the region had set up checkpoints in the outskirts of Bani Walid. (Additional reporting by Taha Zargoun and Oliver Holmes; Writing by Oliver Holmes; Editing by Rosalind Russell)