The Treasury Department says the sanctions against Gadhafi, three of his sons and a daughter also apply to the Libyan government.
The action was taken under an executive order signed Friday by President Barack Obama.
Obama says the U.S. is imposing unilateral sanctions on Libya because continued violence there poses an "unusual and extraordinary threat" to America's national security and foreign policy.
The president acted after hundreds of Americans were safely evacuated from Libya following days of bloodshed across the country. Militias loyal to Gadhafi have been firing on protesters who have been demanding the Libyan leader's ouster.
The Sovereign Wealth Fund Institute, a Canadian research organization, estimates that Libya's Investment Authority controls total assets of $70 billion, making it the 13th largest such fund in the world.
The U.S. maintained a stiff embargo against Libya, but in recent years had begun easing some restrictions as a result of Qaddafi's willingness to cooperate in ending his nuclear ambitions and aiding in counterterrorism efforts.
He said that U.S. intelligence agencies would closely monitor Libyan officials for any evidence of involvement in human rights violations. "We want to make sure that violations of human rights are held accountable," he said.