"Let it be a long battle. We will fight from place to place, from town to town, from valley to valley, from mountain to mountain," Gaddafi said in a message relayed by satellite TV on the anniversary of the coup that brought him to power in 1969.
"If Libya goes up in flames, who will be able to govern it? Let it burn," he said, speaking from hiding.
In further comments broadcast later, he vowed to prevent oil exports, in the kind of threat that stirs fears of an Iraq-style insurgency: "You will not be able to pump oil for the sake of your own people. We will not allow this to happen," Gaddafi said. "Be ready for a war of gangs and urban warfare."
Amid conflicting reports of where the 69-year-old fugitive might be, a commander in the forces of the new ruling council said he had fled to a desert town south of the capital, one of several tribal bastions still holding out.
Seeking to avoid more bloodshed, opposition forces also extended by a week a deadline for Gaddafi's hometown of Sirte, on the coast, to surrender.
Meeting the National Transitional Council in Paris yesterday (1 September) at the invitation of France and Britain, prime backers of the Libyan uprising which followed other Arab Spring revolts, Western powers said Gaddafi was still a threat, but handed the NTC $15 billion (€10.5 billion) of his foreign assets to start the job of rebuilding.
"We have committed to unblock funds from the Libya of the past to finance the development of the Libya of the future," French President Nicolas Sarkozy told a news conference.
"The world bet on the Libyans and the Libyans showed their courage and made their dream real," Mahmoud Jibril, the prime minister in the interim government, said as NATO air forces maintained support for NTC fighters on the frontlines in Libya.
National Transition Council to be given Libya's UN Seat
A history of tribal, ethnic and regional friction as well as divisions during the rebellion have created a wariness about the ability of the new leaders to introduce the stable democracy that is the declared goal for the potentially oil-rich nation of six million.
US Secretary of State Hillary Clinton said UN sanctions should be lifted in a responsible way and the National Transition Council (NTC) should be given Libya's UN seat.
She said in Paris: "The work does not end with the end of an oppressive regime. Winning a war offers no guarantee of winning the peace that follows."
"We will be watching and supporting Libya's leaders as they keep their stated commitments to conduct an inclusive transition, act under the rule of law and protect vulnerable populations," she added, pledging to continue military support and calling on Gaddafi and his entourage to give themselves up.
Clinton also urged the new leaders to work with those who once supported Gaddafi: something the prime minister in the ousted government, al-Baghdadi Ali al-Mahmoudi, said he was also doing, according to a report by al-Arabiya television.
Other powers, notably Russia and China, have been slower to warm to Gaddafi's enemies but attended the Paris conference as international competition warms up for a share of contracts in rebuilding Libya and in exploiting its big oil and gas reserves.
Russia recognised the NTC as Libya's government yesterday.
EU ends sanctions on six Libyan ports
Meanwhile, the European Union has decided to end its sanctions on six Libyan ports, several oil firms and banks, the EU foreign policy chief yesterday.
The EU's asset freeze on 28 Libyan entities will end with immediate effect.
"Our goal is to provide resources to the interim government and the Libyan people and help to make the economy function again," foreign policy chief Catherine Ashton said in a statement.
The EU's 27 governments reached a preliminary agreement on 31 August to ease the bloc's restrictions.
"Today's decision concerns in particular Libyan ports, as well as the energy and banking sectors," Ashton said, adding: "The EU has acted swiftly in the light of the developments on the ground."
The decision came just ahead of an international 'Friends of Libya' conference to be hosted by France later on Thursday to coordinate support for the political and economic rebuilding of the North African state after the overthrow of Muammar Gaddafi.
EurActiv with Reuters