Blair admitted that he had sought permission of Prime Minister David Cameron before advising Gaddafi to flee the country ahead of a military campaign to topple him in 2011.
Former UK PM was giving evidence to a committee of lawmakers investigating Britain's role in the downfall of Colonel Gaddafi in 2011 — four years after Blair stepped down as prime minister.
However, he was questioned over his policy of bringing the Libyan leader 'in from the cold' in 2007 at a meeting the two leaders had in a tent in the desert.
Libya had been seen as a pariah state by the UK, following the murder of police office Yvonne Fletcher outside the Libyan embassy in St James's Square, London in 1984. She was on duty during a protest in the square when — according to the subsequent inquest — she was shot by a gunman on the first floor of the embassy.
Four years later, in 1988, Pan Am flight 103 — a Boeing 747 — was brought down by a bomb over Lockerbie, Scotland, killing all 243 passengers, 16 crew on board and 11 more people on the ground.
Despite the continuing diplomatic differences between the two countries, Blair initiated a meeting with Gaddafi in Libya, in March 2004. Blair said he talked with Gaddafi about the Palestinian issue and Africa, as well as the prospects of Libya to opening up its economy and making political change.
"The tragedy of Libya is that the potential of the country is enormous," Blair told the lawmakers Friday. "It's got some incredible assets. It's potential in energy is huge, and so it is in tourism.
"It's tragic that the country was taken over by the Gaddafi regime and then tragic what has happened subsequent to the fall. But those assets remain, and the country's progress remains something that, if they could get stability there, it could be a fantastic country," Blair said.
He said reopening talks with Gaddafi was the right decision at the time.
"It was always one of those decisions that was difficult because of the nature of the regime and the individual we were dealing with. But on the other hand, I think it was worthwhile, because of the protection of our security and because of the broader interest of trying to engage a country like that in a process of change," Blair said.
— Christopher Hope (@christopherhope) December 11, 2015
Just spotted Tony Blair posing for selfies in the Houses of Parliament after his evidence session on his phone calls with Col Gaddafi— Christopher Hope (@christopherhope) December 11, 2015
He told the lawmakers that the decision to engage with Gaddafi had long-term security benefits for the UK and other countries. Not only did Gaddafi give up his chemical and nuclear weapons program, he also cooperated with the UK in tackling terrorism.
Blair was later criticized for writing the famous "Dear Muammar" letter, signed, "Best wishes yours ever, Tony."
In it he wrote, "I trust that you, and your family, are well," before telling Gaddafi that he believed it to be essential that the court's decision "is not allowed to undermine the effective bilateral cooperation which has developed between the United Kingdom and Libya in recent years… not least in the crucial area of counter-terrorism."