GENEVA (Reuters) - Secretary of State Hillary Clinton accused Libyan leader Muammar Gaddafi on Monday of using "mercenaries and thugs" to suppress a popular uprising as world leaders discussed new steps to oust him.

"We have seen Colonel Gaddafi's security forces open fire on peaceful protesters. They have used heavy weapons on unarmed civilians. Mercenaries and thugs have been turned loose to attack demonstrators," Clinton said in a speech to the U.N. Human Rights Council in Geneva.

"Through their actions, they have lost the legitimacy to govern. And the people of Libya have made themselves clear: It is time for Gaddafi to go -- now, without further violence or delay."

Many of the world's foreign ministers, attending a human rights conference in Geneva, were discussing next steps against Gaddafi, whose violent bid to crush a two-week-old revolt against his 41-year rule has sparked international outrage.


U.S. officials say United Nations and other sanctions on Gaddafi and his core supporters may "peel off" the Libyan strongman's remaining allies and seal his political fate.

"We need to deploy the tools that we have available to us right now to try to send a message not only to Gaddafi ... but to the people around Gaddafi, who are the ones we're really seeking to influence..." a U.S. official said on condition of anonymity.

"... Some of whom may in fact be rational. Some of whom may be interested in self preservation."

World leaders have repeatedly denounced Gaddafi's use of force against civilians and urged him to quit, but have been slow to take concrete action, constrained until expatriate workers were evacuated from Libya.

The U.N. Security Council voted on Saturday for an arms embargo and other sanctions targeting Gaddafi and his inner circle, and referred the crackdown to the International Criminal Court (ICC) in the Hague.

U.S. President Barack Obama has already announced U.S. sanctions and on Saturday said it was time for Gaddafi to step down.

Britain has revoked Gaddafi's diplomatic immunity and several states have frozen family assets. The European Union on Monday approved a package of sanctions including an arms embargo and bans on travel to EU states.


Australian Foreign Minister Kevin Rudd said his government would ask the United Nations to approve a no-fly zone.

U.S. officials have said all options are under consideration but appear concerned that a vote on a no-fly zone could be harder to secure at the Security Council, where veto-wielding members Russia and China may resist stronger action.

Asked if he had discussed a no-fly zone in his meeting with Clinton, Russian Foreign Minister Sergei Lavrov was adamant.

"Absolutely not. It was not mentioned by anyone," he told reporters.

But the EU foreign policy chief said a no-fly zone was currently being discussed," Ashton told reporters after addressing the Human Rights Council.

Italian Foreign Minister Franco Frattini said European ministers had raised the issue of a no-fly zone with Clinton.

"First, we need a political decision. Second, we need operational support, in terms of military bases of departure, in terms of planes and in terms of enforcement measures," Frattini told a news conference.

Gaddafi's suppression of protests has sparked fears of civil war in the oil-producing North African country.

German Foreign Minister Guido Westerwelle said after meeting Clinton that his government would propose a moratorium on financial transfers to Libya for 60 days and Frattini said EU states were discussing ways to stop money flows.

Clinton is seeking to coordinate the implementation of sanctions, particularly with EU countries who have a deeper economic relationship with Libya than the United States does.

She said on Sunday the United States was contacting Libyan rebels, who have seized large parts of the country and now face Gaddafi loyalist forces dug in in Tripoli.

The International Criminal Court prosecutor in the Hague said he could open a full investigation on Libya in coming days.

(Additional reporting by Stephanie Nebehay and Laura MacInnis; Editing by Kevin Liffey)