Germany's government also moved to block a bank account worth USD 2.8 million held by one of Gadhafi's sons in order to prevent the money being used against the Libyan people.
The announcements come after the European Union issued travel bans and an asset freeze against senior Libyan officials, and ordered an arms embargo on the country following a deadly uprising. Switzerland and Britain already have frozen Libyan assets.
About USD 1.7 billion Libyan deposits are currently in Austrian financial institutions but it is still unclear if and how much of this money belongs to the Gadhafi family and its allies, Austria's National Bank said in a statement.
"We can block accounts, we can confiscate real estate and prevent it from getting into the hands of the regime in Libya and we'll do so immediately," Austria's Foreign Minister Michael Spindelegger said.
Germany's Economy Minister Rainer Bruederle said Tuesday the decision to freeze the son's account "sends a clear signal" that Germany is working together with its European partners to "demand democracy and rule of law" in Libya.
He gave no information as to which of Gadhafi's sons owned the bank account. The younger son, Seif al-Arab, studied for several years in the southern city of Munich. The Gadhafi clan has close ties to Austria. One of Gadhafi's sons and top advisers, Seif al-Islam, studied in Vienna and was spotted at highbrow social events such as the capital's annual Opera Ball.
While in town, he lived in a villa in a fancy neighborhood, and in a display of his extravagant lifestyle, he kept two white tigers at Vienna's Schoenbrunn Zoo about a decade ago. Seif al-Islam was also friends with right-wing politician Joerg Haider and attended his funeral in October 2008.
When two Austrians were kidnapped by Islamist militants while on vacation in Tunisia, Haider claimed that Seif al-Islam helped secure their release. The couple later came home unharmed but it was unclear what, if any role, Gadhafi's son had played.
In past years, members of the Gadhafi clan traveled to Austria for shopping trips and other reasons, the Interior Ministry said Tuesday but denied local media reports this was the case as recently as last week.