Libya's rival governments will not return to peace talks this week after rebel forces Wednesday rejected the latest proposal, defying threats the UN Security Council would impose sanctions on anyone who stands in the way of a deal.

The National General Congress parliament in Tripoli, which was seized by rebel forces last year, said it would consult for a week on the new draft, ruling out returning to the talks due to begin in Morocco on Thursday.

"The amendments introduced in the latest text submitted by the UN did not include (our own) proposals," it said in a statement released late on Wednesday.

Libya Dawn, the coalition of militias that controls the capital, also rejected the latest peace plan as "treason, because it sanctions the creation of a fascist dictatorship under the auspices of the UN".

Dozens of people protested against the new draft in front of the CGN's headquarters in Tripoli on Wednesday, burning pictures of the UN envoy leading the peace talks Bernardino Leon, according to an AFP journalist on the scene.

Libya's leadership is split between Libya Dawn forces, who seized the capital last year, and the internationally recognised government that was forced to flee to Tobruk, in the northeast of the country.

The factions are facing international pressure to form a national unity government and end years of chaos in the war-torn country, which has become a hotbed of jihadist groups and a starting point for migrant smugglers sending people across the Mediterranean to Europe.

- UN sanctions -

The UN Security Council on Wednesday warned that "there can be no military solution to the crisis in Libya" and urged all sides to "sign the proposal presented by the UN support mission in Libya in the coming days".

A national unity government "is in the interests of the Libyan people and their future, in order to end Libya's political, security and institutional crises and to confront the rising threat of terrorism," it added.

The 15-member council said it was "prepared to sanction those who threaten Libya's peace, stability and security or that undermine the successful completion of its political transition".

In Tobruk, the seat of Libya's internationally recognised government, lawmaker Osama Mohamed Faraj al-Chaaf said parliament was ready "in principle to endorse" the text, according to a news agency close to the authorities.

A previous bid by Britain, France, Spain and the United States to step up pressure on the sides with sanctions was blocked by Russia and China.

The United Nations has been brokering talks between Libya's various groups with a view to establishing a government that could confront the threat from Islamic State extremists, who have gained a foothold in several towns.

A surge of jihadist violence across the region, including the killing of 38 people, most of them British tourists, at a Tunisian beach resort on Friday, has prompted mounting international pressure for a deal.

Libyan factions agreed during Geneva talks in January to set up a national unity government to restore stability that has been shattered since the 2011 fall of Moamer Kadhafi.