"We have agreed on granting asylum to Saadi Gaddafi for humanitarian reasons," the South African Press Association (SAPA) quoted Niger's President Mahamadou Issoufou telling a news conference at the end of a two-day visit to South Africa.
The asylum decision taken by Niger President will only strain already troubled relations between Niger and Libya's interim rulers, who overthrew Muammar Gaddafi after an eight month uprising and want both sons to stand trial for alleged atrocities.
Saadi Gaddafi, a businessman and former professional footballer, is in Niger after escaping across the border from Libya when National Transitional Council (NTC) forces captured the capital Tripoli in August.
Interpol has issued a "red notice" requesting member states to arrest Saadi with a view to extradition if they find him on their territory.
Libya's interim justice minister on Friday questioned Niger's grounds in granting asylum on humanitarian grounds, saying it was usually given to people facing persecution in their own country. "But al-Saadi has practiced persecution and incitement to murder. He is accused of killing Tripoli football player and national team member Bashir Al Rayan ... There is strong circumstantial evidence that he was involved in that," Mohammed al-Alagi told Dubai-based Al Arabiya television.
Issoufou said he did not know the location of Saif al-Islam who is wanted by the International Criminal Court (ICC) on charges of crimes against humanity. "Saif al-Islam is not in Niger. I would have to consider what to do if he comes. We will deal with issues in terms of law and democracy and international agreements," Issoufou said.
Niger is a member of the Hague-based global court and officially would have to hand over Saif al-Islam if he arrived on its territory. The ICC says it has been in indirect contact with Saif al-Islam to discuss him giving himself up.
He is believed to be deep in the Libyan desert.