David Cameron welcomed a investigation today into "significant" accusations that that the UK security services became "too close" to Libya.
Documents discovered in Tripoli following the fall of Muammar Gaddafi's dictatorial regime appear to suggest that the UK traded information with Libya in return for intelligence extracted from terror suspects under interrogation in Libyan prisons.
The Gibson Inquiry - initially set up to look at cases of British nationals held at Guantanamo Bay - has announced that it will "be considering allegations of UK involvement in rendition to Libya as part of our work".
The Prime Minister paid tribute to the work of the security services but said it was important that allegations were investigated properly.
In a statement to MPs, he also warned that there must be "no pampered hiding place from justice" for the former Libyan dictator.
And he vowed that Nato would continue its military campaign "for as long as we are needed" to protect civilians from the remnants of loyalist forces.
"Significant accusations have been reported today that under the last government relations between the British and Libyan Security Services became too close, particularly in 2003," he told the House.
"We have asked Sir Peter Gibson to examine issues around the detention and treatment of terrorist suspects overseas and the inquiry has already said it will look at these latest accusations very carefully.
"My concern throughout has been to deal with these accusations of malpractice so as to enable the Security Services to get on with the vital work they do.
"And because they cannot speak for themselves, let me put on record once against our enormous gratitude for all they do to keep our country safe."
Mr Cameron praised the "bravery and resilience" of the Libyan rebels in overthrowing the Gaddafi regime and taking the capital Tripoli but warned that the struggle continued.
Pro-Gaddafi forces have been given a deadline of Saturday to surrender in their strongholds of the old regime or face an attack but efforts to secure a peaceful solution have failed.
"For as long as Gaddafi remains at large, the safety and security of the Libyan people remains under threat," Mr Cameron said.
"So let me be clear: we will not let up until the job is done.
"First, Britain and its Nato allies will continue to implement UN Security Council Resolutions 1970 and 1973 for as long as we are needed to protect civilian life.
"Those thinking Nato will somehow pull out or pull back must think again. We are ready to extend the Nato mandate for as long as is necessary.
"Second, we will support the Libyan people in bringing Gaddafi to justice.
"This is a man whose crimes are becoming ever more apparent every day and who is wanted by the International Criminal Court. There must be no bolt-hole, no pampered hiding place from justice.
"He must face the consequences of his actions, under international and Libyan law."
The Prime Minister said he had received assurances of full cooperation from Libya's new leaders in Scotland Yard's continuing hunt for the killer of WPc Yvonne Fletcher.
Only one of three main suspects in the 1984 killing outside the Libyan embassy in London is believed to be still alive.
The documents at the centre of the new allegations of complicity were found by Human Rights Watch in the Tripoli offices of former head of Libyan intelligence Musa Kusa, who defected from the regime and flew to the UK in March following the start of the uprising against Gaddafi.
The documents suggest that Britain may have been involved in the rendition of Libyan terror suspects including Abdul Hakim Belhadj, now a commander in the rebel forces which overthrew Gaddafi with UK support.
Belhadj is reported to be demanding an apology from London for its involvement in his 2004 rendition and subsequent imprisonment, during which he says he was tortured.
According to one of the documents found, MI6 dispatched an intelligence officer to Tripoli after Belhadj's detention to obtain information of "urgent importance" from him relating to UK anti-terrorist operations.
At the time, he was a member of the Libyan Islamic Fighting Group, which was affiliated to al Qaida.
The documents also show the CIA worked with the regime of the now fugitive dictator on the rendition of terror suspects, one of whom was reported to be Abu Munthir, previously the deputy of a man described as al Qaida's number three, Abdul Hadi.
The Gibson Inquiry was commissioned by the Prime Minister in July last year to "look at whether Britain was implicated in the improper treatment of detainees, held by other countries, that may have occurred in the aftermath of 9/11".
But its formal launch has been delayed until after the conclusion of legal cases brought by Guantanamo detainees, expected to take many months. And it faced a setback in July when lawyers and human rights groups acting on behalf of the former detainees announced a boycott of the inquiry, which they said would be "secretive, unfair and deeply flawed".
Labour leader Ed Miliband praised the Government for pressing for UN action.
"If we had not acted, we would have been spending recent months not talking about the progress of our action in Libya but wringing our hands over slaughter in Benghazi, as we did after Bosnia."
He also backed plans for the Gibson inquiry to fully investigate claims that MI6 was involved in the rendition of Libyan terror suspects.
"No part of the British state should ever be complicit in torture," he said.
Mr Miliband also called for "transparency" in the way private companies operate in the oil industry in Libya to ensure deals "benefit the Libyan people".
Last week Downing Street confirmed it had operated an oil cell to block supplies to Gaddafi and ensure rebels had access to fuel, using former oil trader-turned-minister Alan Duncan's expertise.