Libya's main legislative body has approved a law setting up a free trade zone on the country's Mediterranean coast, Saadi Gaddafi, a son of Libyan leader Muammar Gaddafi, told Reuters on Sunday.

The zone will have free movement of capital and goods, its own courts and a stock exchange, and investors there will benefit from a 10-year tax holiday, according to a copy of the law seen by Reuters.

The idea of the free trade zone has been in development for several years, and a Dubai-based property developer had said it plans to be involved, but progress has been slow.

Saadi Gaddafi, a businessman who is likely to be director of the zone's board, said the zone was needed to stimulate investment outside Libya's oil and gas sector.

'Although Libya has other sources, we still depend primarily on oil,' he told Reuters in an interview. 'We have to take care of industry, foreign investment, tourism and we also have to search for other sources ... anything that makes Libya depend on sources other than oil.'    

He said the law on the zone had been approved by his father, was backed by his brother Saif Al-Islam, who is Libya's second most powerful political figure, and had also been approved by the Basic People's Congresses, Libya's main law-making body.

Under Libya's grass-roots system of government, decisions taken by the Basic People's Congresses are automatically passed into law by the General People's Congress, or parliament. - Reuters