Omran Ben Shaaban was kidnapped, shot and tortured by people who many in Misrata believe were supporters of the late dictator.
The 22-year-old died in France, where he was receiving medical treatment for his injuries.
His body was flown back to Libya, met by hundreds of mourners.
In Misrata, protesters called for the government to avenge his death.
Mr Shaaban was kidnapped by armed men in July and held for 50 days in the town of Bani Walid, a former Gaddafi stronghold that lies south-east of the capital Tripoli.
He was freed last week following the mediation efforts of Mohamed Magarief, Libya's interim leader and president of the ruling General National Congress (GNC).
Mr Shaaban arrived in Misrata with torture marks on his body and a bullet wound near his spinal cord, according to reports. He was taken to Paris for treatment, but died on Monday.
Hundreds of people gathered at the airport in Misrata to greet his body. His coffin was carried in a procession to a football stadium where funeral prayers were held.
Mr Shaaban came to prominence on 20 October last year when he was pictured at the scene as Col Gaddafi was dragged from a drainage pipe where he was hiding in Sirte.
The GNC mourned the "loss of a brave hero" and has said it will take all necessary measures to bring the perpetrators to justice, according to a statement issued on the official Lana news agency.
One of the Libyan rebels credited with capturing ex-leader Muammar Gaddafi last year has been buried in his hometown of Misrata.