The dictator is said to have proposed a meeting of the Libyan parliament to agree a transition period to pave the way for him to step down, according to Al Jazeera, the Arab TV network.
His terms include immunity from criminal prosecution and a pile of cash.
The rebel interim council, based in the eastern city of Benghazi, reportedly rejected the offer because such an ‘honourable’ exit would offend Gaddafi’s victims.
Deal: Libyan leader Muammar Gaddafi's terms are said to include immunity from criminal prosecution and a pile of cash
Gaddafi allegedly sent Jadallah Azzouz Talhi, a former prime minister, to meet the rebels to work out the fine print of a deal.
The offer proposed that the dictator would hand over power to a committee formed by the General People’s Congress.
A source close to the rebel council said he had heard that ‘one formula being proposed by the other side would see Gaddafi hand power to the head of parliament and leave the country with a certain guaranteed sum of money’.
He added: ‘I was told that this issue of money is a serious obstacle from the national council’s point of view.’
But Essam Gheriani, a media officer for the council, said: ‘No such offer has been put to the council as far as I am aware.’
Talhi, a leading member of the ruling establishment in the 1980s, had earlier appealed to rebel leaders for dialogue in the clearest sign yet that Gaddafi may be ready to compromise with opponents challenging his grip on power.
The fact state television screened Talhi’s appeal indicated it was officially endorsed.
But the council said there was no room for broad dialogue with Gaddafi and any talks must be on the basis that he quits.
Asked about Talhi’s address, rebel official Ahmed Jabreel said: ‘Talhi is a close acquaintance of mine and he is widely respected in Libya as a man who stood up to Gaddafi.
'But we have made it clear all along that any negotiations must be on the basis that Gaddafi will step down. There can be no other compromise.’
Two Arab newspapers – the London-based daily Asharq Al Awsat and the daily Al Bayan, based in the United Arab Emirates – had earlier yesterday carried reports that Gaddafi was looking for an escape route.
One of Gaddafi’s sons, Saadi, warned Libya would descend into civil war if his father stepped down.
A Libyan rebel wearing an ammunition belt and hat and carrying grenades is pictured in the town of Bin Jawwad
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