The Scottish Government insisted no decision had yet been taken to free Abdelbaset Ali Mohmed Al Megrahi, who has terminal prostate cancer.
But there was mounting speculation that Megrahi, who is serving a life term with a minimum of 27 years, could be released on compassionate grounds as early as next week, in time for the start of Ramadan.
US relatives voiced anger at the reports while some British relatives backed the move, saying they believed in the innocence of Megrahi.
US relative Bob Monetti, who lost his son Rick in the outrage, said he was "very sceptical" of the early release report - and of Megrahi's illness.
He said: "We understand Megrahi was just a tool in this, he wasn't really the person that decided what to do.
"We would really rather see (Libyan leader Colonel Muammar) Gaddafi in jail, but Megrahi was the one who was convicted and lost his appeal.
"So I'm really happy to see him in jail."
Another US relative, Susan Cohen, whose only child 20-year-old Theodora was killed, said the release of Megrahi would be a "disgrace".
"It makes me sick, and if there is a compassionate release then I think that is vile.
"It just shows that the power of oil money counts for more than justice.
"There have been so many attempts to let him off. It has to do with money and power and giving Gaddafi what he wants."
But British relative Martin Cadman, who lost his son Bill in the 1988 airliner bombing, said Americans convinced of Megrahi's guilt and sceptical of his illness should "get real".
"(They should) remember that the likely cause of the bombing of Pan Am 103 was the shooting down by an American ship of an Iranian Airbus in 1988," he said.
He described the original trial as a "farce" and said: "I think he is innocent and even if he were not innocent I still think it's certainly the right thing to do on compassionate grounds."
And Dr Jim Swire, who lost his daughter Flora when the Pan Am 747 was brought down over Lockerbie, said: "I am someone who does not believe he is guilty.
"The sooner he is back with his family the better.
"On reasonable human grounds it is the right thing to do and if it's true that he is to be transferred on compassionate grounds, then that would be more to Scotland's credit than returning him under the prisoner transfer agreement."
Megrahi was convicted by a Scottish court sitting in the Netherlands in 2001 and sentenced to life. A Libyan co-accused, Al Amin Khalifa Fhimah, was found not guilty.
The Scottish Government is considering a request by Megrahi to be released on compassionate grounds, and a separate request for him to be transferred from Greenock prison to complete his sentence in a Libyan jail.
An appeal against his conviction is already under way and a prisoner transfer request cannot be granted while this is continuing.
But if he were granted compassionate release he would not have to drop the appeal.
A Scottish Government spokeswoman said: "We can confirm that no decision has been made on applications under the prisoner transfer agreement or compassionate early release by the Libyan authorities and Mr Al Megrahi.
"Justice Secretary Kenny MacAskill is still considering all the representations in both cases and hopes to make a decision this month."
A report that Greenock prison governor Malcolm McLennan has recommended compassionate release was discounted by the Scottish Prison Service.
"No recommendation has yet been made," said a spokesman.
An MSP campaigning on his behalf said Megrahi was "very ill" and was not expected to live beyond the end of the year.
SNP MSP Christine Grahame, who has visited him in prison, said the appeal would continue if he was granted compassionate release.
"If it is the case, and it's still speculation, compassionate release is just not only for Mr Megrahi but the victims' families," she said.
Opposition parties in Scotland voiced alarm at developments.
Scottish Tory justice spokesman John Lamont said: "If Mr Megrahi is released without compelling medical evidence that he is gravely ill then it would be a catastrophic decision by Alex Salmond's government."
And Scottish Liberal Democrat justice spokesman Robert Brown said the decision was "wrong in principle, wrong in practice and sets the wrong precedent".
He said: "This is a man who was convicted in a Scottish court under the eyes of the world of the worst atrocity in Scotland in modern times."
But former Labour MP Tam Dalyell, who has long argued Megrahi's innocence, welcomed the move.
He said: "If you believe passionately, as I do, that he is an innocent man, the sooner that he gets out the better."
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