Prime Minister Gordon Brown was facing fresh pressure over the Lockerbie row tonight amid claims he backed releasing the bomber.
A Libyan minister insisted he had been told Mr Brown and Foreign Secretary David Miliband did not believe Abdelbaset Ali Mohmed Al Megrahi should die in prison.
The revelation came in notes taken by a Scottish Government delegation of a meeting with Libya's minister for Europe, Abdulati Alobidi, in March this year.
Mr Brown and UK ministers have consistently refused to say whether they supported freeing Megrahi on compassionate grounds, or transferring him to serve the rest of his sentence in his home country - stressing it was a decision for the Scottish Justice Secretary.
But Mr Alobidi apparently told Scottish officials that he had been given an indication of the view in Downing Street during a meeting with Foreign Office minister Bill Rammell in Tripoli in February.
The notes, published by the Scottish Government this evening, stated: "Mr Alobidi confirmed that he had reiterated to Mr Rammell that the death of Mr Megrahi in a Scottish prison would have catastrophic effects for the relationship between Libya and the UK.
"Mr Alobidi went on to say that Mr Rammell had stated that neither the Prime Minister nor the Foreign Secretary would want Mr Megrahi to pass away in prison but the decision on transfer lies in the hands of the Scottish ministers."
A wealth of documentation was released by the UK and Scottish administrations today in a bid to dampen speculation that Megrahi's case had been linked to trade and political deals with Libya. Downing Street said it had issued all correspondence "relevant" to the current controversy over Megrahi's release.
Letters show that Justice Secretary Jack Straw initially agreed to a Scottish request for Megrahi to be excluded from a prisoner transfer agreement being negotiated with Libya.
Mr Straw assured his counterpart in Edinburgh, Kenny MacAskill, in September 2007 that UK diplomats would make clear no agreement was possible without this condition.
But in December 2007, the Justice Secretary admitted he had not been able to secure an exemption for Megrahi and had decided to go ahead with the agreement "in view of the overwhelming interests of the United Kingdom".
He also wrote to Scottish First Minister Alex Salmond in February 2008, assuring him: "No prisoner can be transferred under the PTA without the consent of both countries and any decision concerning the transfer of a prisoner from Scottish jail would be a matter for Scottish ministers.
"Given these safeguards, I do not believe that it is necessary or sensible to risk damaging our wide-ranging and beneficial relationship with Libya by inserting a specific inclusion into the PTA."
Mr Straw wrote to Mr Salmond in November last year pointing out Libyan "concerns for health and possible return to Libya" of Megrahi but stressed it was a matter for the Scottish administration to decide.
In a letter of August 3 this year, Foreign Office minister Ivan Lewis wrote to Mr MacAskill to say he hoped he would feel able to consider Megrahi's application for a return to Libya under the terms of the agreement.
But in the event, the man found guilty of downing PanAm flight 103 in 1988, killing 270, was allowed to return home on compassionate grounds because of his terminal cancer. The prisoner transfer arrangements were not used in his release on August 20, which caused controversy in Britain and the US, where most of the victims lived.
Some details relating to the US Government's views on the bomber's application for release have been cut from the documents, as have the identities of civil service officials.
Lib Dem foreign affairs spokesman Ed Davey said the documents "raise more questions than they answer".
"The Prime Minister must come clean on whether his Government told the Libyans he did not want to see Megrahi die in prison," he said. "It would be disgraceful if he felt able to share his feelings on this case with a dictator but not with the British public.
"Jack Straw must explain his u-turn over Megrahi's inclusion in the Prisoner Transfer Agreement. His about-turn on this issue can only add to suspicions that there was an important commercial component to this deal."
David Cameron told Sky News: "One of the key questions has been what is the attitude of the British Government and the British Prime Minister? What is the Prime Minister doing in our name? Publicly he has refused to say what he thinks about the release of Megrahi.
"I'm very clear, this man should not have been released. He was found guilty of murdering 270 people, he should die in prison. That is my view. What is the Prime Minister's view? He has refused to tell us and yet today we know that privately, we're told, the British Government was saying to the Libyans they wanted him released while they were saying to the American Government he should stay in prison.
"This means the questions have not been answered, we've got to get to the bottom of this, we have a right to know what the Government has done in our name, and that means we need that independent inquiry."