It was the first time Obama has called for Gadhafi to step down, coming after days of bloodshed in Libya. Gadhafi has vowed to fight to the end to keep his four-decade grip on power in the North African country.
"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, summarizing Obama's telephone conversation with German Chancellor Angela Merkel.
Until now, U.S. officials have held back from such a pronouncement, insisting it is for the Libyan people to decide who their leader should be.
Secretary of State Hillary Rodham Clinton said Libyans "have made themselves clear."
"Gadhafi has lost the confidence of his people and he should go without further bloodshed and violence," she said in a separate statement. "The Libyan people deserve a government that is responsive to their aspirations and that protects their universally recognized human rights."
The administration upped its pressure a day after it froze all Libyan assets in the U.S. that belong to Gadhafi, his government and four of his children. The U.S. also closed its embassy in Libya and suspended the limited defense trade between the countries.
Clinton announced further sanctions Saturday, revoking visas for senior Libyan officials and their immediate family members. She said applications from these people for travel to the United States would be rejected.
Obama has been conferring with world leaders about the unrest in Libya. The administration is hoping that the world speaks with a single voice against Gadhafi's violent crackdown on protesters, and Obama is sending Clinton to Geneva on Sunday to coordinate with foreign policy chiefs from several countries.
The U.N. Security Council met Saturday to debate new sanctions against Libya but disagreed over a proposal to refer Gadhafi and his top lieutenants to an international war crimes tribunal.
Secretary-General Ban Ki-moon wants immediate action to protect Libyan civilians. The U.N. chief was due in Washington on Monday for talks with Obama at the White House.
The administration has faced increasing pressure to more forcefully condemn Gadhafi and explicitly call for his ouster, as demanded by French President Nicolas Sarkozy. Witnesses in Libya said Gadhafi is arming civilian supporters to set up checkpoints and roving patrols in Tripoli, the capital.
The U.S. held back, but its tone shifted sharply Friday after Americans in Libya were evacuated to safety by ferry and a chartered airplane.
Shortly after, Obama signed an executive order outlining financial penalties designed to pressure Gadhafi's government into halting the violence. The order said that the instability in Libya constituted an "unusual and extraordinary threat" to U.S. national security and foreign policy.
A nonviolent revolt against Gadhafi's government began Feb. 15 amid a wave of uprisings in the Arab world. Most of Libya's eastern half is under the control of rebels. Witnesses say Gadhafi's government has responded by shooting at protesters in numerous cities.
Meanwhile, Libya's top envoy to the U.S. claimed that Gadhafi's opponents were rallying behind efforts to establish an alternative government led by a former Libyan minister. He said the international community should back the movement.
The claim by Ambassador Ali Aujali couldn't be immediately verified and it was unclear what support the "caretaker government" led by ex-Justice Minister Mustafa Abdel-Jalil commanded.
But Aujali said the U.S. and other countries could accelerate Gadhafi's exit by supporting Abdel-Jalil.
"He is a very honest man, a man with dignity," Aujali told The Associated Press. "I hope this caretaker government will get the support of Libyans and of the international community."
The State Department said it had no knowledge of Abdel-Jalil's effort.