One of Colonel Gaddafi's sons tried to broker a deal to save him ten days before he was captured and killed, Sky sources have revealed.
Saadi Gaddafi, who fled to Niger several weeks ago, tried to broker a peace agreement with pro-democracy fighters to carve up the country.
Sky sources in Libya say he phoned the most senior military leader in Tripoli but that his plea was rebuffed.
Meanwhile, Muammar Gaddafi's burial is expected to be delayed, according to an official from Libya's interim government.
The delay is due to the need to finalise the burial location, the oil minister of Libya's National Transitional Council (NTC) said.
"I told them to keep it in the freezer for a few days... to make sure that everybody knows he is dead," Ali Tarhouni told Reuters.
However a former rebel commander insisted the dictator's burial would proceed according to Islamic custom.
"I expect he will be buried in a Muslim cemetery within 24 hours," commander Abdul-Salam Eleiwa said in Misratah.
"He will get his right like any Muslim, his body will be washed and treated with dignity."
But footage has emerged of the dead dictator lying on a yellow mattress inside a chiller room, where dozens of chanting men take mobile phone photos of his bloodied body.
The corpse appears to have at least two separate bullet wounds, and the men examine one in the abdomen and another in the side of the head.
Col Gaddafi was killed after being captured by the Libyan fighters he once scorned as "rats" on Thursday, cornered and shot in the head after they overran his last bastion of resistance in his hometown of Sirte.
His capture came after Nato aircraft fired on a large convoy of vehicles attempting to flee the besieged town.
His bloodied, half-naked body was taken by fighters to Misratah , the city west of Sirte whose siege and months of suffering at the hands of Gaddafi's artillery and snipers made it a symbol of the rebel cause.
Sky News foreign editor Tim Marshall said: "We don't know the exact reasons for the burial delay and there may be a dispute behind the scenes between the Misratah brigade and the NTC based in Tripoli.
"They may simply be deciding on a burial location, it may be about a shrine or it may be based on placing humiliation upon humiliation."
A formal announcement of Libya's liberation, which will set the clock ticking on a timeline to elections, will be made on Saturday, officials said.
"It's time to start a new Libya , a united Libya," Prime Minister Mahmoud Jibril declared. "One people, one future."
Nato has revealed that an aircraft fired on 11 armed vehicles in a 75-vehicle convoy attempting to flee Sirte at high speed at 8.30am.
A second aircraft then fired on a group of about 20 cars which dispersed after the first strike.
According to a Nato post-damage assessment, the second strike damaged or destroyed about 10 vehicles.
However officials did not know at the time that the wanted dictator was among those fleeing Sirte.
It is believed Col Gaddafi and his entourage then sought refuge in a drainage tunnel under a road.
But confusion remains over exactly how Col Gaddafi died once captured by pro-democracy fighters.
Mr Jibril , reading what he said was a post-mortem report, said Col Gaddafi was hauled unresisting from a "sewage pipe".
He was then shot in the arm and put in a truck which was "caught in crossfire" as it ferried the 69-year-old to hospital.
"He was hit by a bullet in the head," Mr Jibril said, adding it was unclear which side had fired the fatal shot.
However, jerky video showed a man with Col Gaddafi's distinctive long, curly hair, bloodied and staggering under blows from armed men, apparently Misratah-based fighters.
The brief footage showed him being hauled by his hair from the bonnet of a car and begging for mercy.
"We want him alive. We want him alive," one man shouted.
But amid shouts of "Allahu Akbar" - Arabic for "God is great" - he disappears from view before gunshots ring out.
The circumstances surrounding the death need investigation , according to United Nations human rights chief Navi Pillay.
"On the issue of Gaddafi's death yesterday, the circumstances are still unclear," Ms Pillay's spokesman Rupert Colville said.
"There should be some kind of investigation given what we saw yesterday."
He added: "One key aspect to obtain closure on the legacy of Gaddafi... would be to ensure that justice is done."
According to Reuters, Arrai TV has announced that Col Gaddafi's wife has urged the UN to investigate the death of her husband.
Meanwhile the former head of Britain's armed forces told Sky News the death was "gruesome" but looked towards the future of the Libyan people.
Lord Dannatt said: "This gruesome episode, as unattractive and rather worrying as it is, I think should be put to one side and let the country move on now."
As news of Gaddafi's demise spread, people poured into Libya's streets in jubilation.
In Benghazi, where last February Col Gaddafi said he would hunt down the "rats" who rose up against him, thousands took to the streets, loosing off weapons and dancing under the old tricolour flag revived by his opponents.
Nato , aware of diplomatic sensitivities, refused to claim victory for its campaign and let the Libyans celebrate for themselves.
French President Nicolas Sarkozy said the death of Col Gaddafi meant Nato's military intervention in the North African country had reached its conclusion.
"Clearly the operation is coming to its end," Mr Sarkozy said.
Libyan officials said Col Gaddafi's son Mutassim had also died after the air strike. His body was later placed in the chiller room on a mattress near his dead father.
Another son, heir-apparent Saif al-Islam, was variously claimed to be surrounded, captured or killed and NTC military officials said they believed he was heading south to Niger.
The regime's former intelligence chief Abdullah al Senoussi is also believed to have fled to northern Niger.
He is wanted by the International Criminal Court (ICC) for crimes against humanity.
The ICC said it would not close legal action against Col Gaddafi until it received proof of death, possibly including DNA evidence.
Sky reporter Kitty Logan in the Libyan capital said: "The mood here in Tripoli is of absolute euphoria.
"This is the moment they have been waiting for, this is what their revolution was about and if the rumours are true this is closure for the Libyan people."
British Prime minister David Cameron welcomed the news in a short statement outside Downing Street.
"I think today is a day to remember all of Colonel Gaddafi's victims," he said.
The Secretary General of the UN, Ban Ki-Moon said Col Gaddafi's death marked an "historic transition for Libya".
But the father of one of the victims Lockerbie bombing, Dr Jim Swire, said the former dictator's death means an "opportunity has been lost" to find out the truth about the attack.
President Obama said it was a "momentous day" for Libya but warned there would be difficult days ahead.