The Argentine side were joined by twice winners Santos of Brazil after their 1-1 draw at home to Colombia's Once Caldas put them through 2-1 on aggregate.
Diminutive midfielder Maxi Moralez scored Velez's first two goals at the Defensores del Chaco in Asuncion as their quarter-final second leg victory put them through 7-2 on aggregate.
"This is a team that can achieve great things," Moralez, voted man of the match, told Fox Sports.
Trailing 3-0 after the first leg, Libertad took the lead one minute before half-time when midfielder Rodrigo Rojas volleyed home a cross from the left with goalkeeper Marcelo Barovero rooted to the spot.
Velez, South American champions in 1994, hit back immediately when Moralez ran on to fellow midfielder Victor Zapata's through ball to shoot past keeper Tobias Vargas less than a minute later.
Striker Manuel Maciel restored the home side's lead six minutes into the second half with a hard drive from the left across the face of goal and past the diving Barovero into bottom corner.
The Argentine side's second equaliser came in the 67th minute from a fine attack on the left with Moralez passing to Emiliano Papa and receiving the defender's back-heel in his stride to shoot past Vargas.
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Former Mexico striker Guillermo Franco, who came on in the 63rd minute in his comeback from surgery on a knee injury three months ago, converted a penalty after being brought down to put Velez ahead in the 86th.
Midfielder Augusto Fernandez made it four a minute later when he sidestepped a challenge in the middle of the box before rifling a deflected shot high into the net.
Santos, 1-0 up from the first leg in Manizales, went ahead in the 12th minute at the Pacaembu in Sao Paulo when Neymar took a square ball from midfielder Danilo, entered the box and shot past goalkeeper Luis Martinez.
Striker Wason Renteria equalised when he tapped in the loose ball following a poor clearance from a corner for his fifth goal in the competition.
Neymar had the chance to win the match for Santos five minutes from time when he was brought down in the box but Martinez saved the penalty.
Five times champions Penarol of Uruguay take a 2-0 lead to Santiago on Thursday for the second leg against Universidad Catolica, while Cerro Porteno host Chiapas in Asuncion following last week's 1-1 draw in Mexico.
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