Col Gaddafi made the demand as he ended his controversial two-day visit to Italy where he caused outrage in the Catholic church by hosting two 'convert to Islam parties'.
Today furious Italian MPs slammed his demands - made in his farewell speech - for cash to stop immigration and compared them to a 'Mafia extortion racket'.
In the speech Gaddafi, 67, told his audience in Rome: 'Italy needs to convince her European allies to accept this Libyan proposal - five billion euro to Libya to stop illegal immigration.
'Europe runs the risk of turning black from illegal immigration, it could turn into Africa.
Demands: Colonel Gaddafi has said the EU should pay Libya £4.1bn a year to prevent immigration through the country
'At the moment there is a dangerous level of immigration from Africa into Europe and we don't know what will happen.
'What will be the reaction of the white Christian Europeans to this mass of hungry, uneducated Africans?
'We don't know if Europe will remain an advanced and cohesive continent or if it will be destroyed by this barbarian invasion. We have to imagine that this could happen but before it does we need to work together.
Opposition MPs called on Silvio Berlusconi to distance himself from the Libyan leader and his attempts to secure money from the EU.
Silvana Mura, of the anti-sleaze party Italy of Values, said: 'We need to know immediately if the Italian government intends to support this proposal which is in essence an unacceptable blackmail.
'We have already had to support the clown antics of the Libyan leader on his visit to Italy, with the approval of the government and now he is asking for a pay off from Europe.
The move triggered sharp criticism from the UN's refugee agency and human rights groups.
Thousands of people each year attempt to cross the Mediterranean from Libya to Italy and many die en route, while those who are caught are taken back to camps in Libya where conditions are appalling.
Luigi de Magistris, an MEP with Italy of Values, said: 'The dictator Gaddafi wants five billion euro to stop immigration but where will the money go?
'Will it go towards those deported and put into concentration camps in Libya?