"The continuing brutal and bloody repression against the Libyan civilian population is revolting," Sarkozy said in a statement.
"The international community cannot remain a spectator to these massive violations of human rights."
France's president has asked the Foreign Ministry to propose sanctions including barring those implicated in the crackdown from the European Union and monitoring their financial transactions. He also wants to ensure they are brought to justice.
The statement added that Sarkozy wants to examine the possibility of suspending economic, commercial and financial relations with Libya.
According to the CIA World Factbook, in 2009 Libya's major export customers were European: Italy received about 38 percent of its exports, Germany had 10 percent, and France and Spain had about 8 percent.
That same year, Libya received nearly 19 percent of its total imports from Italy, followed by China at 10 percent, and Germany and Turkey at about 10 percent, the CIA reported. France accounted for less than 6 percent.
Sarkozy's proposal was a sharp turnaround from 2007, when he hosted Libyan leader Moammar Gadhafi for a pomp-filled visit to Paris, and the two countries cut billions of euros in deals for arms and nuclear reactors.
The warm welcome for the Libyan leader drew angry protests, including from France's then-human rights minister, who said rewarding a man accused of rights abuses with business deals was letting him treat France as "a doormat."
Libya's crackdown on protesters has killed nearly 300 people, according to a partial count by the New York-based Human Rights Watch.
The crisis has sent oil prices soaring to the highest level in more than two years. On Tuesday, Gadhafi vowed to fight to his "last drop of blood."