Howard Davies said a decision to accept a grant several years ago was in error and expressed regret that he had gone to Libya to advise the regime, calling it a "personal error of judgment," the BBC reported Friday.
Davies, who resigned Thursday, said working as an economic adviser to the Gadhafi government while being the school's director led to a "muddle."
Anti-government protesters have been calling for the ouster of Gadhafi, who has ruled the country for more than 40 years. Violence has escalated, with reports of government-backed security forces and militias firing on the protesters and bombing cities under rebel control.
Davies defended the school's ties to Gadhafi, saying, "There were no sanctions on dealing with the Libyan regime."
"To say that we will not train officials in developing countries because of what those regimes may or may not do is very curious," he told the BBC.
Davies had been under pressure after media reports indicated the London School of Economics agreed to train hundreds of young Libyans to become future leaders, the BBC reported. The contract was worth about $3.6 million.
The school's council commissioned an independent study into the institution's relationship with Libya and the Gadhafi family.
"I am responsible for the school's reputation, and that has suffered," Davies said in a statement. "However laudable our intentions, in the light of developments in Libya the consequences have been highly unfortunate, and I must take responsibility for that. I advised the council that it was reasonable to accept the money, and that has turned out to be a mistake."