"I know that some of you are uncomfortable with throwing away your BDP membership but you could still vote for the opposition candidates so that we topple the ruling party," he said.
Black T-shirts emblazoned with Khama's portraits and captioned "E seng mo kgosikgolo" Tswana for "hands off our paramount chief" were distributed at the event.
Khama is a traditional chief in the Serowe area of eastern Botswana.
A labour consultant Gosa Rapelang, 35, travelled more than 200 kilometres (125 miles) from the city of Francistown to support Khama's decision.
"What Khama did is fair. The situation in the BDP is toxic," she said. "We are going with him whereever he is going."
But unemployed 30-year-old Goitsemodimo Ramadi calls for dialogue between the feuding camps.
"These people should sit down and resolve their differences. Nothing positive will come out of this situation," said Ramadi.
"It is not too late to resolve their issues. I am not sure if I will vote for opposition party in October. Time will tell".
Independent political analyst Anthony Morima said Khama commands "a huge following. You ignore him at your own peril".
If opposition parties enter into a coalition the ruling party will struggle to maintain its grip on power.
"These elections won't be easy for the BDP to win," said Morima
The BDP did not immediately respond to Khama's decision.