The circumstances of his death are not yet clear. Fighters loyal to the National Transitional Council (NTC) said they found him hiding in a hole, and shot him when he tried to escape.
Col Gaddafi was toppled in August after 42 years in power when Tripoli fell to the National Transitional Council.
The NTC now plans to officially announce Libya’s “liberation” before indicating the next steps towards democratic elections.
After a day of conflicting reports and rumours, the NTC’s acting prime minister Mahmoud Jibril told a news conference: “We have been waiting for this moment for a long time. Muammar Gaddafi has been killed.”
World leaders welcomed the news, urging the NTC to carry through its promise to reform the country.
UK Prime Minister David Cameron, who had taken a leading role in Nato’s intervention, said it was “a day to remember all of Colonel Gaddafi’s victims”.
UN Secretary General Ban Ki-moon called it a “historic” moment, but warned: “The road ahead for Libya and its people will be difficult and full of challenges.”
Proof of Colonel Gaddafi’s fate came in grainy pieces of video, first circulated among NTC fighters and then broadcast by international news channels.
The first videos showed a bloodied corpse, with some channels picking up footage they said showed the colonel’s body being dragged through the streets.
An NTC fighter told the BBC he found Colonel Gaddafi hiding in a hole in Sirte, and the former leader begged him not to shoot.
The fighter showed reporters a golden pistol he said he had taken from Colonel Gaddafi.
Arabic TV channels showed images of troops surrounding two large drainage pipes where the reporters said Col Gaddafi was found.
Later, another video emerged of the colonel being bundled on to the back of a pick-up truck after being captured alive.
NTC fighters said he was shot when he tried to escape.
Libyans gathered in towns and cities across the country to celebrate the reports of the colonel’s death.
His death came after weeks of fierce fighting for Sirte, one of the last remaining pockets of resistance.
Nato, which has been running a bombing campaign in Libya for months, said it had carried out an air strike earlier on Thursday that hit two pro-Gaddafi vehicles near Sirte.
It was unclear whether the strikes were connected with Colonel Gaddafi’s death.
Mr Jibril promised that National Transitional Council (NTC) chief Mustafa Abdul Jalil would give more details of how Colonel Gaddafi was killed either late on Thursday or during Friday.
He said Mr Abdul Jalil would also officially announce the “liberation of the country”, allowing the NTC to begin pushing through democratic reforms that will lead to elections.
“I think it’s for the Libyans to realise that it’s time to start a new Libya, a united Libya, one people, one future,” Mr Jibril said.
Like most dictators – Gaddafi was vilified and befriended by the West when it suited them. When the tide of revolution started coming in on Gaddafi, Britain, France and the USA were quick to categorise him as an unwanted tyrant. Only a year or two earlier they were verging on being friends. Oil eh? It does strange things to a powerful countries foreign policy.