The leading cleric of the capital's besieged Lal Masjid on Friday said he would rather die than give himself up to authorities after his offer for conditional surrender was rejected by the Pakistani government.

"I would not surrender but would prefer martyrdom," Abdul Rashid Ghazi, who is holed up inside the mosque, told TV channels as the bloody stand-off between security forces and the militants entered the fourth day.

On Thursday, the government rejected Ghazi's offer to leave the mosque with his followers if he was granted a safe passage of the kind provided by India to Pakistani militants during Kargil war.

Shifting his stance, Ghazi said, "I could cut my head but would not bow it before the government."

"My martyrdom would bring a revolution in Pakistan and thousands of Lal Masjids would come into existence," he said.

Ghazi said the northern and southern walls of the mosque have been damaged due to firings by law-enforcement personnel.

Hand grenades are being thrown inside the religious complex but the government is calling for respect and honour of the mosque to make a fool of the people, he said.

He also accused the government of misusing the army to divide people and defame the military in the eyes of common man.

"We are fighting against the system and would continue it till the last drop of blood. We are satisfied because our viewpoint is right," he said.

Earlier on Friday, loud explosions and gunfire rocked the Lal Masjid as the government rejected all conditions for surrender put forward by Ghazi.