Speaking at the start of two days of peace talks in Geneva, Bernardino Leon said a national unity government should be formed by the end of August.
Libya's internationally recognised government was last year driven from the capital Tripoli by Libya Dawn, an alliance of local militia groups.
The militias declared their own government, dividing the country.
"What Libya is facing now is deeper chaos and division... So I hope all the Libyan actors will be wise to avoid this scenario, to expedite the talks, and to reach an agreement very soon," said Mr Leon.
He called for the new unity government to be endorsed by both factions with a vote in September.
"It is extremely risky to reach October without an agreement because we will be in a more chaotic situation," he said. "This is why it is important to have this timeline."
All of Libya's rival factions have gone to the Geneva talks, despite suggestions just days ago that some groups would not attend.
Among those present are leaders of the General National Congress (GNC), the Islamist-backed parliament that now sits in Tripoli. GNC leaders had declined to participate in an earlier UN-sponsored agreement, signed in Morocco in July.
The UN proposals presented in Geneva call for a one-year government led by a prime minister and council of ministers.
"We would like the GNC and all of the Libyans who are participating in the process to give the benefit of the doubt to this process," said Mr Leon.
Currently, Libya's internationally recognised parliament is based in the eastern port of Tobruk, while the GNC is nearly 1,000km (620 miles) to the west in Tripoli.
The United Nations special envoy to Libya has called on the country's rival governments to reconcile this month.