Boris Johnson is facing calls for his sacking after saying a Libyan city could become the next Dubai once it had cleared the dead bodies away.
A Tory MP said the Foreign Secretary's comments were "100% unacceptable" and insisted he must lose his job.
His Labour counterpart, Emily Thornberry, said the remarks were "unbelievably crass, callous and cruel".
Mr Johnson was made to "move on" after he told Tory activists that investors want to transform the coastal city of Sirte, where dictator Muammar Gaddafi was killed during the 2011 civil war, into a new version of the emirate.
But when he said their only obstacle is to "clear the dead bodies away", the host of the conference fringe event stepped in. As Mr Johnson continued to speak, Baroness Stroud, a former special adviser to ex-Cabinet minister Iain Duncan Smith, said: "Next question."
The Legatum Institute chief executive officer added: "The dead bodies was the move on moment."
Mr Johnson had been asked about his recent visit to the country, which has been wracked by violence since the fall of its former leader. The Foreign Secretary said: "I look at Libya, it's an incredible country.
"Bone white sands, beautiful sea, Caesar's Palace, obviously, you know, the real one. Incredible place. It's got a real potential and brilliant young people who want to do all sorts of tech.
"There's a group of UK business people, actually, some wonderful guys who want to invest in Sirte on the coast, near where Gaddafi was captured and executed as some of you may have seen.
"They have got a brilliant vision to turn Sirte into the next Dubai. The only thing they have got to do is clear the dead bodies away," he said before laughing.
Heidi Allen, a Tory MP who represents South Cambridgeshire, tweeted: "100% unacceptable from anyone, let alone foreign sec. Boris must be sacked for this. He does not represent my party."
Ms Thornberry said: "It is less than a year since Sirte was finally captured from Daesh by the Libyan Government of National Accord, a battle in which hundreds of government soldiers were killed and thousands of civilians were caught in the crossfire, the second time in five years that the city had seen massive loss of life as a result of the Libyan civil war.
"For Boris Johnson to treat those deaths as a joke - a mere inconvenience before UK business people can turn the city into a beach resort - is unbelievably crass, callous and cruel.
"If these words came from the business people themselves, it would be considered offensive enough, but for them to come from the Foreign Secretary is simply a disgrace.
"There comes a time when the buffoonery needs to stop, because if Boris Johnson thinks the bodies of those brave government soldiers and innocent civilians killed in Sirte are a suitable subject for throwaway humour, he does not belong in the office of Foreign Secretary."
Mr Johnson defended his comments, saying: "Shame people with no knowledge or understanding of Libya want to play politics with the appallingly dangerous reality in Sirte.
"The reality there is that the clearing of corpses of Daesh fighters has been made much more difficult by IEDs (improvised explosive devices) and booby traps.
"That's why Britain is playing a key role in reconstruction and why I have visited Libya twice this year in support."