As the international community stepped up efforts to isolate his regime, an obdurate Gaddafi vowed to crush the rebellion against his 41-year rule and proposed to arm his supporters.
"We can defeat any aggression if necessary and arm the people," he said in footage aired on Libyan state TV.
"I am in the middle of the people.. we will fight ...
we will defeat them if they want .. we will defeat any foreign aggression," said the 68-year-old Libyan ruler.
His address came as the violence flared up in his bastion Tripoli, with security forces loyal to Gaddafi firing indiscriminately on thousands of demonstrators after the Friday prayers yesterday.
Across Libya, protesters braced up for a potentially lengthy battle to overturn the regime, even as reports said that the Army in several areas had turned hostile to the government.
In his most aggressive action against Libya since the violence began, US President Barack Obama issued an executive order announcing unilateral sanctions on the country freezing the assets in America of Gaddafi, his family and loyalists.
"By any measure, Muammar el-Gaddafi`s government has violated international norms and common decency and must be held accountable," Obama said in a statement after he issued the executive order late last night.
"These sanctions therefore target the Gaddafi government, while protecting the assets that belong to the people of Libya," he said.
The executive order blocks the property and interests in property of a number of individuals, including four of Gaddafi`s sons, officials of the Libyan government and those responsible for human rights violations in that country.
Libya`s ambassador to the UN became the latest official to openly renounce the regime.
Mohamed Shalgam, a childhood friend of Gaddafi, broke into tears after denouncing the leader and called for a "courageous resolution" from the Security Council to save Libya.
The envoy accused Gaddafi and his sons of giving Libyans an "either I rule you or I kill you" ultimatum.
The US also suspended its military ties with Libya and closed down its embassy in Tripoli.
The action came minutes after a charter flight left Tripoli carrying the last Americans who wanted to leave Libya.
"It`s clear that Colonel Gaddafi has lost the confidence of his people," White House Press Secretary Jay Carney said.