The man considered the colonel's number two, Interior Minister Abdel Fattah Younes al-Abidi, is among senior figures who have joined the opposition.
The UN Security Council demanded an end to the violence on Tuesday, while the Arab League suspended Libya.
Protesters greeted an angry speech by the veteran leader with defiance.
The BBC's Jon Leyne, in eastern Libya, says people there believe the government now controls just a few pockets of territory including parts of the capital Tripoli and the southern town of Sabha.
At least 300 people have been killed so far in the uprising, which has spread from the east of the country, although Italian Foreign Minister Franco Frattini told reporters in Rome that a more realistic death toll was 1,000.
Mr Frattini also told Corriere della Sera newspaper he feared an immigrant exodus on a "biblical scale" if Col Gaddafi was toppled, predicting up to 300,000 Libyans could flee.
French President Nicolas Sarkozy called for the European Union to adopt "swift and concrete sanctions" and to suspend ties with Libya.
He spoke as France's Total became the latest oil company to announce that it was suspending its operations in the North African nation.
Meanwhile, European countries have been evacuating their citizens from Libya.Planes and frigates from Turkey, France and Russia have been sent to pick up thousands of their stranded nationals.
A UK warship, HMS Cumberland, has been sent to the Libyan coast ahead of a possible evacuation.
The UN Security Council's statement in New York late on Tuesday came amid reports that foreign mercenaries have been attacking civilians and warplanes bombing protesters.
The council's 15 members said the Libyan government should "meet its responsibility to protect its population", act with restraint, and respect human rights and international humanitarian law.
The statement said the Libyan authorities should also hold accountable those people responsible for attacking civilians, and respect the rights of its citizens.
Libya's deputy permanent representative to the UN, Ibrahim Dabbashi - who called on Monday for Col Gaddafi to step down - said the statement was "not strong enough".
Meanwhile, Interior Minister Mr al-Abidi - head of the powerful Thunderbolt commando brigade - read a resignation statement from his desk, urging the army to support the people and their "legitimate demands".
The Libyan ambassador to Indonesia, Singapore and Brunei became the latest figure to quit on Wednesday, in protest at the crackdown on demonstrators in his country.A senior aide to Saif al-Islam Gaddafi, a son of the Libyan leader, has also quit, Reuters news agency reports.
The BBC's Jon Leyne, in eastern Libya, says people there reacted with anger and derision to Col Gaddafi's speech on Tuesday in which he referred to the protesters as rats and cockroaches.During the rambling 75-minute address on state TV, Col Gaddafi - who has ruled the country since taking power in a 1969 military coup - vowed to crush the revolt and die as a martyr.
Bursts of gunfire and blaring of car horns were heard in Tripoli after the speech, although it is not clear if protesters or Gaddafi loyalists were responsible.
German Chancellor Angela Merkel said Col Gaddafi's speech was "very, very appalling" and "amounted to him declaring war on his own people".
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