The high-ranking official, who requested anonymity, told Xinhua Gaddafi's second son, Saif al-Islam, told ruling National Transitional Council's forces his younger brother, Khamis, is still alive.
NTC forces have confirmed Khamis' whereabouts in Terhouna, a city 55 miles southeast of Tripoli, and are expected to capture him soon, the defense ministry official said.
Saif al-Islam, wanted by the International Criminal Court on charges of crimes against humanity, was arrested in Sebha in southern Libya on Saturday.
His confession has led to the capture of former intelligence chief Abdullah al-Senussi, another key figure in Gadhafi's regime, Xinhua reported.
Khamis' death has been announced several times since Libya's conflict began.