Speaking from the top of a building Kadhafi told hundreds of loyalist supporters below to prepare themselves for a fight.
He called on them to "defend Libya". "If needs be, we will open all the arsenals".
"We will fight them and we will beat them," he said as cheering supporters raised portraits of the leader and waved the country's green flag.
Images on state television showed the leader repeatedly raising his arms and shaking his fists during the brief appearance while shouting that the Libyan people "love Kadhafi".
This was Kadhafi's third statement this week. He previously called on his followers to crush the insurrection and later said Al-Qaeda was behind what he called "drug crazed mobs" of youth trying to unseat him.
Kadhafi supporters had reportedly earlier killed several people in shooting that spread through the capital and French President Nicolas Sarkozy became the first world leader to openly demand the Libyan leader's ouster.
So far the European Union has agreed to issue an arms embargo, as well as to freezing Libyan assets and imposing a travel ban.
And Western nations have drawn up a draft UN Security Council resolution that would impose similar sanctions worldwide, diplomats said in New York.