The `Powerless (Say What You Want)` singer appeared for the dictator`s family in 2007, but pledged to give the money away, after an uprising to overthrown him in the North African country, which have reportedly left thousands dead.
Nelly tweeted: "In 2007, I received 1million$ from the Qaddafi clan to perform a 45 min. Show for guests at a hotel in Italy. I am going to donate the $ (sic)."
Colonel Gaddafi - who has been linked to terrorist activity and accused of running a brutal regime over his people for 40 years - has been asked to step down by leaders of the western world, but refused, even denying there is unrest in the state.
Other stars including Beyonce Knowles, Mariah Carey, Usher and 50 Cent are also known to have been paid to perform for members of Gaddafi`s family, and are now being urged to return their fees, and put money into causes which help the oppressed people of the state.
While stars may have appeared at such parties, is it unlikely they would have known who they were performing for.
Buck Williams, agent for indie group R.E.M, said: "Ninety percent of the time the artist has no clue. You hear about these things, it`s generally after the fact.
"But the majority of my artists, if they knew something was funded by Qaddafi, they would not play it, and morally it would not rest well with them."