France yesterday targeted Diabaly in an eighth day of airstrikes aimed at dislodging al Qaeda-linked fighters there.
Diabaly Mayor Oumar Diakite said: "Soldiers are in the town carrying out mopping up operations. There are lots of burned-out vehicles."
A commander in the Malian army in nearby Markala said ground forces were operating in Diabaly, which lies about 220 miles north-east of Bamako, but could not confirm the town, seized by Islamists on Monday, had been recaptured.
Armed with weapons seized from Libya after the 2011 fall of Muammar Gaddafi, the Islamist alliance of al Qaeda's North African wing AQIM and home-grown Malian groups Ansar Dine and MUJWA has put up staunch resistance.
The progress of French and Malian troops has been slowed also because insurgents had taken refuge in the homes of civilians.
French President Francois Hollande ordered the intervention on the grounds that the Islamists could turn northern Mali into a "terrorist state" radiating threats beyond its borders.
Despite threats from militants to attack French interests around the world, France, which now has 1800 troops on the ground in Mali, has pledged to keep them there until stability returns to the poor, landlocked West African nation.
A total of 2500 French troops are expected in Mali but Paris is keen to swiftly hand the mission over to West Africa's ECOWAS bloc, which in December secured a UN mandate for a 3300-strong mission to help Mali recapture its north.
The first contingents of Togolese and Nigerian troops arrived in Bamako on Thursday. Nigerien and Chadian forces were massing in Niger, Mali's neighbour to the east. African states have now pledged more than 5000 troops.
Nigerian President Goodluck Jonathan, in a letter to the Senate requesting approval to raise Nigerian's force to 1200 soldiers, said Mali was a threat to the region.
"The crisis ... may spill over to Nigeria and other West African countries with negative consequences on our collective security, political stability and development efforts," he said. His request was approved.
With African states facing huge logistical and transport challenges, Germany promised two Transall military transport aircraft to help fly in their soldiers. Britain has supplied two C-17 military transport planes to ferry in French armoured vehicles and medical supplies.
The US is considering logistical and surveillance support.
Military experts say France and its African allies must now capitalise on a week of hard-hitting airstrikes by seizing the initiative on the ground to prevent the insurgents withdrawing into the inaccessible desert and reorganising.
Mali's woes began with a coup in Bamako last March after two decades of democracy. In the chaos, Islamist forces seized swathes of the north and imposed a rule reminiscent of Afghanistan under the Taliban.
The UN refugee agency said refugees from northern Mali had given accounts of amputations and executions. It expects 400,000 to flee the country in the coming months, while 300,000 are likely to be displaced within the country.