It's the first time Kadhafi has spoken publically since protests began a week ago.
Speaking from what appeared to be his residence in Tripoli, he urged the public not to believe the "dogs" reporting that he had left Libya.
Libya's state-owned TV station Al-Jamahiriya Two has since denied all allegations of massacres carried out against protesters, calling the reports "psychological warfare".
Human rights groups say the death toll from the violence is between 200 and 400.
Eastern cities including Al-Bayda and Benghazi are now reportedly under the control of anti-Kadhafi demonstrators. The Paris-based group International Federation for Human Rights says that protesters also control eight other towns, some closer to the capital.
The UN Security Council will meet on Tuesday to discuss the unrest in Libya, as will the Arab League.
UN Secretary-General Ban Ki-moon said he had spoken to Kadhafi by telephone for 40 minutes and that he had asked for freedom of assembly to be respected.
Earlier Ban had said he was "outraged" at reports of Libyan war planes and helicopters firing on demonstrators. He called for an immediate end to the violence.
His comments followed similar criticism from political leaders in France, Turkey, Australia, the European Union and the United States.
Meanwhile diplomatic staff around the world continue to call for Kadhafi to leave power.
After Libya's representatives to the United Nations on Monday called for him to stand down, the country's embassy in Australia reportedly cut its ties with Kadhafi on Tuesday after meeting with Australian government officials.
Libya's ambassador to India said that he had quit because of what he called "massive" and "unacceptable" violence against civilians.
And Libyan embassy staff in Malaysia condemned what they called the "massacre" of anti-government protesters. They said they were no longer loyal to Kadhafi.
A well-respected Muslim cleric, Yusuf al-Karadawi, has issued a fatwa saying that any Libyan soldier can shoot Kadhafi dead.