The Foreign Office is strongly denying claims that the release of Lockerbie bomber Abdelbaset Ali Al Megrahi was linked to trade agreements between Britain and Libya.
Libyan leader Colonel Muammar Gaddafi's son Saif is reported to have said that the decision to free Megrahi from a Scottish prison was tied to a deal between the UK and oil-rich north African state.
However the Foreign Office insisted that there was no deal between London and Libya in relation to Megrahi, and that his release on compassionate grounds was purely a matter for the Scottish authorities.
"There is no deal. All decisions relating to the Megrahi case have been exclusively for Scottish ministers, the Crown Office in Scotland, and the Scottish judicial authorities," a spokesman said.
"No deal has been made between the UK government and the Libyan government in relation to Megrahi and any commercial interests in the country."
Speculation that there had been some form of agreement was fuelled by the disclosure that Business Secretary Lord Mandelson met Saif al-Islam Gaddafi during his recent holiday on the Greek island of Corfu.
The deepening controversy of Megrahi's release follows condemnation of the bomber's triumphant homecoming on both sides of the Atlantic.
Crowds waving Libyan and Scottish flags were waiting at Tripoli airport after terminally-ill Megrahi flew back from Glasgow on Thursday. He was released by Scottish Justice Secretary Kenny MacAskill on compassionate grounds after serving less than eight years of his life sentence.
Foreign Secretary David Miliband said the welcome scenes were "deeply upsetting", and warned the way the Libyan government acted over the next few days would be "very significant" in determining how the rest of the world treated the former pariah state.
US president Barack Obama described the triumphant Tripoli welcome awarded to Megrahi as "highly objectionable".
And it was disclosed that a planned visit to the country next month by the Duke of York could now be cancelled.
Megrahi himself has revealed he will produce evidence proving his innocence before he dies from prostate cancer.
In an interview with The Times, he said: "There was a miscarriage of justice. My message to the British and Scottish communities is that I will put out the evidence and ask them to be the jury." He declined to elaborate.
Downing Street said Gordon Brown had personally written to Col Gaddafi ahead of Megrahi's release on compassionate grounds, urging him to treat the return of the bomber with "sensitivity".
There were indications that the regime was heeding the concerns, with no sign of Megrahi in public yesterday and no broadcast of his jubilant homecoming on Libyan television.
Mr Miliband said of Megrahi's return: "Obviously, the sight of a mass murderer getting a hero's welcome in Tripoli is deeply upsetting, deeply distressing, above all for the 270 families who grieve every day for the loss of their loved ones 21 years ago and also for anyone who has an ounce of humanity in them.
"I think it's very important that Libya knows - and certainly we have told them - that how the Libyan government handles itself in the next few days after the arrival of Mr Megrahi will be very significant in the way the world views Libya's re-entry into the civilised community of nations."
Earlier, Mr Miliband angrily denied suggestions that the Government had wanted Megrahi to be released so that commercial relations with the oil-rich north African state could be improved.
"I really reject that entirely," he said. "That is a slur both on myself and the Government."
Scottish First Minister Alex Salmond strongly defended Mr MacAskill's decision to release Megrahi.
"We did not consider matters of international politics from whatever source. We considered what was right and proper under the system of justice as laid down," he said.
"The message is that Scotland did the right thing for the right reasons."
He also criticised Libya for the welcome scenes, saying: "I don't think the reception for Mr Megrahi was appropriate in Libya; I don't think that was wise and I don't think that was the right thing to do."
Meanwhile Tory leader David Cameron sought to press Mr Brown on whether he supported Mr MacAskill's decision.
British ministers have stuck to the line that it was purely a matter for the Scottish Government.
But in a letter to the Prime Minister, Mr Cameron pointed out that Col Gaddafi's son had publicly thanked both the Scottish authorities and the British Government for their stance, raising questions about the Government's role.
"Above all, I believe that the public are entitled to know what you think of the decision to release Megrahi, and whether you consider it was right or wrong," Mr Cameron said in his letter.
"The fact that the decision to release was taken by the Scottish Justice Secretary does not preclude you, as the Prime Minister of the United Kingdom, from now expressing your opinion on a subject that is of great public concern, and which affects Britain's international reputation and our relations with our allies."Reuse content