Andrew,

If you keep your calories low, you will lose muscle along with the fat. You are also setting yourself up to put fat back on when you back to a "normal" diet. This is a typical yo-yo dieting problem - cut calories low, lose fat and muscle, restore calories, gain more fat than you originally had. I've also red that hormonally, your body reacts to calorie restoration after dieting by storing more fat as a defense against future periods of caloric deficit.