The United Kingdom recognizes Libya's rebel umbrella group, not Moammar Gadhafi's regime, as the legitimate government, Foreign Secretary William Hague said Wednesday.
"We are dealing with them as if they are the state of Libya and that is how we are treating them," Hague said of the Transitional National Council.
He said London was working on ways to unfreeze Libyan government assets and get funds to the rebels.
His announcement came shortly after the Foreign Office said it had expelled all Libyan Embassy staff from the country.
The United States has already recognized the TNC as the "legitimate governing authority" in Libya. Secretary of State Hillary Clinton made the announcement two weeks ago.
Hague also blasted the appearance of Lockerbie bomber Abdelbeset Ali Mohmed al Megrahi on Libyan television overnight, saying that his appearance proved his release from prison was a mistake and that the medical advice he did not have long to live was "worthless."
Al Megrahi, the only person convicted over the 1988 bombing of Pan Am flight 103, which killed 270 people, appeared at a pro-Gadhafi forum in Tripoli on Tuesday afternoon.
He was released from a Scottish prison in 2009 on the grounds that he had cancer and was not likely to live more than three more months.
Appearing frail, in a wheelchair and with a face mask under his chin, he was introduced to the rally as a victim of a conspiracy.
Hague on Wednesday reiterated his stance that Gadhafi could remain in Libya if he leaves power, but added that the best thing would be for him to face justice at the International Criminal Court, which is seeking his arrest.
Libyan Prime Minister al-Baghdadi al-Mahmoudi said Gadhafi's future would be decided only by Libyans.
"With all due respect to the foreign minister of Great Britain, he cannot decide on behalf of the Libyan people," al-Mahmoudi said. "What is important to us is what Libyans decide, not what William Hague decides."
The prime minister also said Tuesday that NATO airstrikes must stop before any negotiations to resolve the five-month-old conflict can begin.
His statement came as the United Nations reported that a visit to the country by the secretary-general's special envoy to Libya found the government and the rebels "far apart on reaching agreement on a political solution."
Al-Mahmoudi, speaking to reporters in Tripoli, said that "this aggression must stop immediately."
"A cease-fire is a must before we can be able to have any sort of dialogue or solution to the Libyan problem," he said.
The prime minister spoke after meeting with the U.N. special envoy, Abdul Ilah al-Khatib, who had met the day before with members of the Transitional National Council in the rebel stronghold, Benghazi.
Al-Khatib warned that a diplomatic breakthrough did not seem to be imminent.
"It is clear from the discussions in Tripoli today and in Benghazi yesterday, with representatives of the Libyan Transitional National Council, that both sides remain far apart on reaching agreement on a political solution," the U.N. said in a statement late Tuesday.
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