Al-Qadhafi says that creating a single African passport and an African identity card would remove obstacles on travel for citizens of African countries.
His proposal came at the opening of a meeting of interior ministers from 53 African Union countries in the Libyan capital, Tripoli, on Friday.
"Let the African citizen exercise his freedom and remove all obstacles in front of him," al-Qadhafi said.
"Our era imposes this on us. If we don't do it, we will be isolated, they will re-establish slavery (in Africa) and colonise us all over again," the Libyan leader said.
According to a statement after the close of the ministerial meeting, the union said it accepted the idea of creating an African passport and would begin consultations.
The ministers' recommendations will be submitted to African Union heads of state during a summit in Syrte, east of Tripoli, on 4-5 July.
The interior ministers gathered in Tripoli in advance of a July African summit "to gradually facilitate bilateral and continental freedom of movement while taking account of social, economic, security and human rights dimensions", the statement said.
Ministers also discussed illegal immigration, the process of issuing visas and how to simplify procedures for allocating visas in AU countries.