However, residents in the city have told reporters there is no substance to these rumours, which they claim the Libyan government is sowing to "scare Europe".
"Al-Qaeda has established an emirate in Derna led by Abdelkarim al-Hasadi, a former Guantanamo detainee," Khaled Khaim said.
"They have an FM radio station and have begun to impose the burqa" (head-to-toe covering for women) and have "executed people who refuse to cooperate with them."
Khaim said Hasadi has a lieutenant, "also a member of Al-Qaeda and named Kheirallah Baraassi" in Al-Baida.
Derna is the capital of a province by the same name in the region of Cyrenaica, some 1250 kilometres east of Libya's capital Tripoli. Al-Baida lies about 100 kilometres west of Derna.Earlier, Italian Foreign Minister Francesco Franco Frattini said embattled Libyan leader Moamer Kadhafi had lost control of Cyrenaica and shared reports that an Islamic emirate had been declared there.
Speaking at a meeting in Rome organised by the Community of Sant'Egidio, a Christian organisation, Frattini said here had been recent proclamations in Cyrenaica that it was now an Islamic emirate and calls to break with the West. (read more)