The Libyan funds in US banks have been frozen under UN Resolution 1970 to discourage Gaddafi from using force against protesters demanding democratic reforms in the oil-rich North African country.
The released funds are expected to be split in three equal parts and distributed as - $500 million to international humanitarian organisation working in Libya, $500 million will cover expenses for deliveries of fuel and humanitarian cargoes and the remaining $500 million will be spent on education and health care.
A draft resolution prepared by Washington says none of the funds could be used for purchases of weaponry, non-lethal military equipment or any other military-related assets.
The uprising against Muammar Gaddafi's 42-year rule began in February. An international military operation "to protect civilians" in Libya began March 19 following a UN resolution.
Rebel forces are controlling large swaths of the country and most of the capital, Tripoli.
Libya's rebel National Transitional Council announced Thursday it would soon start governing the country from Tripoli.
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