The Libyan leader, sought by the International Criminal Court for brutally crushing an uprising against him, delivered the warning in an audio message played to thousands of supporters gathered in the main square of the capital Tripoli.
It was one of the largest pro-government rallies in recent weeks, signaling that the embattled Libyan leader can still muster significant support. Gaddafi addressed the mass gathering in Green Square, speaking from an unknown location in a likely sign of concern over his safety.
Addressing the West, Gaddafi said Libyans might take revenge.
"These people (the Libyans) are able to one day take this battle ... to Europe, to target your homes, offices, families, which would become legitimate military targets, like you have targeted our homes," he said.
"We can decide to treat you in a similar way," he said of the Europeans. "If we decide to, we are able to move to Europe like locusts, like bees. We advise you to retreat before you are dealt a disaster." Today's was one of the largest pro-government rallies in recent weeks.
It came just four days after the International Criminal Court issued arrest warrants for Gaddafi, his son Seif al-Islam and Libyan intelligence chief Abdullah al-Sanoussi for crimes against humanity. International prosecutors allege government troops fired on civilian protesters during anti-Gaddafi street demonstrations earlier this year.
The popular uprising has since turned into a protracted civil war, with anti-government rebels controlling much of eastern Libya and parts of Libya's western mountains. NATO has been bombing government-linked targets since March.