As more cities fell into the hands of the opposition, the pro-democracy protesters appointed ex-justice minister Mustafa Abdel-Jalil to lead a provisional government.
Advancing towards Gaddafi's stronghold of Tripoli, protesters today gained control of Zawiyeh town, which is just 50 km from the capital, besides taking over Misurata in northwestern Libya, Al Jazeera reported.
However, security forces loyal to Gaddafi kept a firm hold of Tripoli, which is in all probability headed for a major showdown between the two sides.
While a major chunk of the oil-producing eastern region, including the birth place of this uprising Benghazi, now appears to be in the grip of the protesters, there were also reports of sporadic gunfire in the capital.
The 15-member Security Council today voted unanimously to slap "biting" sanctions on the regime, ordering an arms embargo, travel and assets ban and a crimes against humanity probe while demanding an immediate end to the violence "incited from the highest level" of Libyan leaders.
The sanctions included asset freezes for 68-year-old Gaddafi and his family, travel ban for the Libyan leader and his family as well as other leaders of the regime, and an immediate referral to the Hague-based International Criminal Court (ICC) for a crimes against humanity probe.
In another tough message, US President Barack Obama while speaking to German Chacellor Angela Merkel said that Gaddafi had lost legitimacy to rule and should leave "now".
"The President stated that when a leader's only means of staying in power is to use mass violence against his own people, he has lost the legitimacy to rule and needs to do what is right for his country by leaving now," the White House said in a statement after the telephonic conversation between Obama and Merkel.
The UN action came as an exodus of foreigners continued in the midst of a worsening situation and growing anarchy. The UN refugee agency said that "close to 100,000 people", mainly foreign migrants, have fled Libya during the past week of turmoil.
Libya''s former justice minister Abdel-Jalil, meanwhile said he was forming a "transitional government" to replace Gaddafi''s crumbling regime.
In the eastern city of al-Baida, Abdel Jalil said the new administration would include commanders of the regular army, many of whom had defected to the opposition, and the set up would pave the way for free and fair elections in three months'' time, Al Jazeera said.
Within the country, reports said that the protesters were planning to march on to Tripoli in their bid to overthrow the defiant regime.
Observers have said that about 2,000 or more people have been killed across the country in the past few days of violence.
The decision to form transitional government came after Abdel Jalil, who had stepped down in protest of the use of excessive force, held a large meeting with tribal elders.
"Our national government has military and civilian personalities. It will lead for no more than three months, and then there will be fair elections and the people will choose their leader," he said.
Clashes continued in many other parts of the country between pro- and anti-democracy protesters, including in the major city of Misurata where residents said that foreign mercenaries had been deployed by the regime.
The US, Britain and Canada have pulled out their diplomatic staff from Libya and closed down their embassies.
Russian Foreign Minister Sergei Lavrov too stepped up pressure on Libya, telling his counterpart Musa Kusa that the use of force against civilians was unacceptable.
In the telephonic conversation, Lavrov said: "Russia, and the whole international community, strongly condemns such actions".
Australia too imposed unilateral sanctions on the Libyan regime and urged the United Nations to take "strong and decisive" action against the administration.
A wave of unrest has swept the Arab world ever since an uprising in another North African country Tunisia threw out an autocratic regime of President Zine-El Abine Ben Ali.
The success of a near bloodless pro-democracy revolution in Egypt has ignited similar protests in countries like Yemen, Jordan, Bahrain, and Morocco. However, the suppression has turned out to be the most brutal in Libya where hundreds have died.