Rebel fighters have pushed the Syrian troops from the city of Maarat Al Numan, forcing them to retreat to two military barracks on its outskirts.
Rebel commanders called the victory "a major breakthrough" though fierce fighting continued in the Idlib province as troops loyal to President Bashar al-Assad launched a counter-attack in a bid to regain territory lost in the northern battlegrounds.
To the east, troops tried to block a new rebel assault on Wadi Deif army base -- the largest in Idlib province, much of which is in rebel hands. Battles erupted nearby as warplanes bombarded the area, said the Observatory.
A military official and the Observatory said al-Assad troops also recaptured Aleppo's Umayyad mosque two days after rebels claimed control of the sitel.
At least 130 people including 79 civilians were killed nationwide on Sunday, the Observatory said, in addition to more than 33,000 who have died since the revolt against the regime erupted in March last year.
The Syrian state news agency, SANA, said troops had killed and captured "dozens of terrorists and destroyed anti-tank rockets" in the northern city.
In Damascus, two explosions hit the upscale district of Mazzeh early on Sunday, the Observatory said, adding that one targeted the car of a pro-regime lawyer who was critically wounded.
SANA said the other blast was a "suicide attack" that caused no casualties.
Dozens of corpses were found in a hospital morgue of the province, Rami Abdel Rahman, from the Observatory, said.
Rahman said the bodies might be of men killed in fighting "over the course of recent months."
The intense fighting on the ground comes as Turkey banned Syrian flights from its airspace, while Iran handed a "detailed proposal" to UN-Arab League envoy Lakhdar Brahimi aimed at ending the conflict.
The reciprocal flight bans heightened tensions between neighbours Syria and Turkey days after Ankara confiscated a cargo of what Russia said was radar equipment being flown from Moscow to Damascus.
The moves brought a flurry of diplomacy intended to calm soaring tensions between the neighbours.
Syria accuses Turkey of channelling arms from Gulf Arab states to rebels fighting its troops, who have been under mounting pressure across large swathes of the north, including in second city Aleppo.
The Syrian flight ban went into force at 2100 GMT on Saturday "in accordance with the principle of reciprocity", SANA state news agency said.
Ahmet Davutoglu, Turkey's foreign minister, said that Ankara had already banned Syrian civilian flights from its airspace.
"Yesterday (Saturday) we closed our airspace to Syrian civilian flights as we have previously done for Syrian military flights," he said.
"As we have established that civilian flights were being misused by the Syrian defence ministry to transport military material, we sent a note yesterday to the Syrian side," Davutoglu said.
Ankara has taken an increasingly strong line towards its southern neighbour since a shell fired from inside Syria killed five Turkish civilians on October 3.
It has since repeatedly hit back for cross-border fire, prompting growing UN concern and a hasty series of diplomatic contacts.
Tensions from the conflict are also being felt in neighbouring Lebanon, and hundreds of people took to the streets of Beirut for two separate rallies, one supporting the Damascus regime and the other calling for its downfall.
With the violence raging, Brahimi on Sunday went to Iran, where foreign minister Ali Akbar Salehi handed him an "unofficial detailed proposal" aimed at ending the conflict in its closest ally Syria.
Brahimi, on his second regional tour after taking up his post at the start of September, welcomed the initiative but reiterated a call by UN chief Ban Ki-moon for Damascus to initiate a ceasefire.
"I thank you for the proposals and as I told you there are some ideas in your proposals which can help by adding to that forwarded by other nations who are also important with regards to the Syrian situation," Brahimi said.
"We hope all these ideas gather into a project to put an end to the Syrian people's nightmare," he added.
Human Rights Watch, meanwhile, urged Syria's military to stop using cluster bombs, weapons that can contain up to 650 submunitions which are sprayed over a large area before exploding.
"Syria's disregard for its civilian population is all too evident in its air campaign, which now apparently includes dropping these deadly cluster bombs into populated areas," said Steve Goose, arms director at the New York-based group.
As the violence intensifies in Syria, EU foreign ministers were set Monday to slap an assets freeze and travel ban on 28 Syrians and two firms, the 20th set of sanctions against President Bashar al-Assad's regime since the start of the conflict in March last year.
Differences of view over the Syria conflict and how to end it were at the centre of closed door talks in Luxembourg on Sunday night between the 27 ministers and Russian counterpart Sergei Lavrov.
The three-and-a-half-hour dinner meeting was "very good" with talks "open, frank and friendly," touching on Syria and Iran, as well as bilateral problems, said a spokesman for EU foreign policy chief Catherine Ashton.
Moscow has repeatedly refused to back international calls for Assad to step down and together with China jointly vetoed three rounds of UN Security Council sanctions against the Syrian leader.