The Libyan government has said it is open to political reform, but Muammar Gaddafi must stay in power to avoid a Somalia- or Iraq-style power vacuum.
Spokesman Moussa Ibrahim described Colonel Gaddafi as a "unifying figure", and insisted his forces only targeted armed rebels, not civilians.
Libyan state TV has showed video of Col Gaddafi rallying supporters in Tripoli.
Meanwhile, his son told the BBC that Foreign Minister Moussa Koussa had not betrayed Libya by leaving for the UK.
Saif al-Islam Gaddafi told the BBC's world affairs editor John Simpson that Mr Koussa had travelled to Britain for health reasons and was being pressured into making allegations about Libya's government in an effort to secure immunity from prosecution.
Mr Gaddafi said Moussa Koussa was allowed to leave Libya, and denied that he knew incriminating details about the Lockerbie bombing or other atrocities.
"The British and the Americans they know about Lockerbie, they know everything about Lockerbie so there are no secrets anymore," Mr Gaddafi said.
"Come on. The British government say this: you have no immunity unless you co-operate. He [Moussa Koussa] is sick, he is sick and old so if you put it this way, no immunity of course... [he] will come out with the funny stories."
On the ground in Libya, the Associated Press reports that rebel fighters have resumed their efforts to retake the eastern oil hub of Brega, pushing halfway into the town. They have won and lost control of the town several times in recent weeks.
The oil-rich country's vital coastal belt is effectively split between rebel forces in the east and government loyalists in Tripoli and the west, nearly two months after the start of a revolt against Col Gaddafi's rule.
A tanker carrying Libyan oil is expected to leave rebel-held territory on Tuesday, the first shipment of oil since the uprising began.
'Elections, referenda, anything'
Speaking in Tripoli, government spokesman Moussa Ibrahim said Col Gaddafi was "a safety valve for the country to remain together".
"The leader provides Libyan tribes and Libyan population of a unifying figure, as a unifying figure," he said.
"Many Libyans, many Libyans want him to lead the process forward because they are scared if he is not there for any reason we will have what happened in Iraq, we will have what happened in Somalia, we will have what happened in Afghanistan."
Libya, Mr Ibrahim said, was open to political reform - "elections, referenda, anything" - but "the leader has to lead this forward".
Mr Ibrahim said it was not for the West to tell Libya "you have to lose your leader or your system or your regime".
Denying government attacks on civilians, he challenged the outside world to investigate any alleged crimes.
"We are fighting armed militias," he said. "You are not a civilian if you take up arms."
Late on Monday Libyan state TV showed what appeared to be live footage of Col Gaddafi saluting supporters from a jeep outside his fortified compound at Bab al-Aziziya in Tripoli.
'Corpses in the street'
As fighting continued in eastern Libya, evacuees from the besieged city of Misrata, in the west, have accused pro-Gaddafi forces of atrocities against civilians.
On Sunday, a Turkish humanitarian ship carrying more than 250 injured people from Misrata, the only major city in western Libya still under rebel control, arrived in the rebel capital Benghazi.
Speaking from Tunisia, other evacuees told Reuters that Gaddafi forces there had been "massacring" civilians.
"You have to visit Misrata to see the massacre by Gaddafi," said Omar Boubaker, a 40-year-old engineer with a bullet wound to the leg, brought to the Tunisian port of Sfax by a French aid group.
"Corpses are in the street. Hospitals are overflowing."
