Qusair, near the Lebanese border, has been the centre of fighting for more than two weeks between rebels and Syrian troops backed by fighters from the Lebanese militant group Hezbollah.
Syrian state TV said a large number of rebels had died and many had surrendered.
The rebels said they withdrew overnight in the face of a massive assault.
Earlier, the military leader of the main rebel umbrella group, the Free Syrian Army, said his fighters were prepared to take the conflict inside Lebanon in pursuit of Hezbollah fighters.
General Selim Idriss of the Free Syrian Army (FSA) – the main umbrella rebel group – said Hezbollah fighters were “invading” Syria and Lebanon was doing nothing to stop them.
Qusair lies just 6 miles from the Lebanese border and along major supply routes.
Syrian pro-government forces, including Hezbollah fighters, have been battling rebels for control of the town for more than two weeks.
But on Wednesday, Syria’s Sana state news agency said the “heroic armed forces have returned security and stability to all of the town”.
Sana said a large number of “terrorists”, as the state refers to the rebels, had been killed and many had surrendered. It said the army was now destroying barricades and weapons caches and searching the town for explosives.
The army said the victory was “a clear message to all those who share in the aggression on Syria … that we will continue our string of victories until we regain every inch of Syrian land”.
“We will not hesitate to crush with an iron fist those who attack us. … Their fate is surrender or death,” it said.
In Lebanon, Hezbollah’s Al-Manar TV reported “widespread collapse” of the rebel forces in the town, while one Hezbollah fighter told Reuters news agency: “We did a sudden surprise attack in the early hours and entered the town. They escaped.”
In a statement also quoted by Reuters, the rebels said: “In face of this huge arsenal and lack supplies and the blatant intervention of Hezbollah… tens of fighters stayed behind and ensured the withdrawal of their comrades along with the civilians.”
The British-based Syrian Observatory for Human Rights, an activist group that monitors the conflict, said Hezbollah fighters had “overrun” Qusair after an “intense bombardment cover overnight by regime forces, which continued until dawn today”.
“Reports indicate that the rebel forces retreated from the city due to lack of ammunition and men, this comes despite the many promises that supplies would reach the rebels,” it said on its Facebook page.
It also expressed concern for the more than 1,200 people it said were injured in Qusair, and urged the Red Cross to go in.
Last week, the Red Cross said it was “alarmed” by the worsening humanitarian situation and appealed for immediate aid access. Syrian Foreign Minister Walid al-Moualem reportedly said last week that the agency would be allowed in once military operations were over.
According to new reports, although there are pockets of rebel resistance to the north of Qusair, the government is hailing its recapture as a strategic victory.
The move is also of symbolic importance in the run-up to a proposed peace conference as neither side wants to go into the talks looking weak.
Russia and the US are meeting in Geneva on Wednesday to try to arrange a date and other details of the conference. But it remains unclear whether it will go ahead as the Syrian opposition has neither confirmed it will attend nor established a credible delegation.
More than 80,000 people have been killed in Syria and more than 1.5 million have fled the country since an uprising against Bashar al-Assad began in 2011, according to UN estimates.
The UN reported on Tuesday that the war had reached “new levels of brutality”, with evidence of massacres and children being taken hostage of forced to witness – sometimes participate in – atrocities.
There is also growing evidence that chemical weapons have been deployed in the conflict.
France’s Foreign Minister Laurent Fabius said on Tuesday that samples taken from Syria and tested in France showed the presence of sarin, and that there was “no doubt that it’s the regime and its accomplices” that were responsible.
Laurent Fabius did not specify where the samples had been collected, but French media reported it had been from the northern town of Saraqeb.
The UK also says it has tested samples which give evidence of the use of sarin in Syria.
Both the Syrian government and the rebels have in the past accused each other of using the weapons.
Strategic town of Qusair:
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