Jack Straw, the Justice Secretary, admitted yesterday that the fate of the convicted Lockerbie bomber Abdelbaset Ali al-Megrahi had formed part of Britain's negotiations with Libya over a multi-billion pound deal for oil exploration in that country.
But Mr Straw adamantly denied that the Scottish authorities' decision to release Megrahi arose from any "back-door deal" with the Libyans.
The revelation increased political pressure yesterday for an inquiry into the Lockerbie atrocity, backed by opposition politicians and by Jim Swire, whose daughter was killed on Pan Am Flight 103 when it was exploded over the Scottish village.
Mr Straw admitted that two years ago the British government attempted to get the Libyans to agree to a clause in a prisoner-transfer agreement that would have ruled out any possibility of Mr Megrahi being sent back to Libya to complete his prison sentence there, rather than in Scotland. But the Libyans refused to make the exemption.
While these negotiations were going on, BP was waiting for Libya to ratify the biggest oil exploration deal in the country's history. That was finally done just weeks after Mr Straw had backed down on the prisoner-transfer issue.
But Downing Street fiercely denied yesterday that this revelation was the "smoking gun" which proved that the UK government was behind the decision made by the Scottish Justice Secretary, Kenny MacAskill, to let Mr Megrahi return to Libya to die.
"There has been a desperate effort for three weeks now to find the smoking gun," a spokesman said. "It won't be found, because fundamentally there was no pressure from Westminster. We totally stayed out of it, and purposefully so."
It was revealed yesterday that Mr Straw wrote to Mr MacAskill in July 2007 saying he favoured an option that would stipulate that Mr Megrahi would not qualify under the prisoner- transfer agreement that Tony Blair had endorsed when he visited Libya three years earlier.
The transfer deal was part of a package to reward Libya for renouncing terror and dismantling its nuclear weapons programme. The package also opened Libya's vast oil reserves for exploration by BP and other oil majors.
In December 2007, Mr Straw wrote to Mr MacAskill again, saying he had changed his mind.
"I had previously accepted the importance of the al-Megrahi issue to Scotland, and I said I would try to get an exclusion for him on the face of the agreement. I have not been able to secure an explicit exclusion," he wrote.
"The wider negotiations with the Libyans are reaching a critical stage and, in view of the overwhelming interests of the United Kingdom, I have agreed that in this instance the agreement should be in the standard form and not mention any individual."
Less than two months after he wrote this letter, the deal with BP was finally ratified by the Libyans.
Frank Duggan, president of the family group Victims of Pan Am Flight 103, told BBC Radio 5 Live: "If there was a direct connection with trade, particularly oil, then the connection is with Britain, not with Scotland, and I think the Brits will have something to answer for."
But Mr Straw insisted on the BBC yesterday that the revelation was "academic", because Mr Megrahi was not in the end released under the transfer agreement, but on health grounds.
But he admitted that agreement on the prisoner- transfer deal was linked to political and diplomatic efforts to normalise relations with Libya.
"Painstaking, secret negotiations" produced, in 2003, a agreement allowing international inspectors to supervise the dismantling of Libya's nuclear weapons programme, he said. "And yes, as part of that there would be gradual normalisation of relations with Libya, with the West as whole, not just with the United Kingdom."
Britain and Libya: The negotiations
*19 March 1999: Nelson Mandela, visiting Tripoli, announced a deal under which Libya would surrender two suspected Lockerbie bombers.
*5 April 1999: Abdulbaset Ali al-Megrahi and Lamin Khalifa Fhimah were delivered to the custody of the Scottish authorities in the Netherlands.
*31 January 2001: Megrahi was convicted after a trail lasting more than a year, and sentenced to life imprisonment. His co-defendant was acquitted.
*19 December 2003: Libya agreed to renounce all weapons of mass destruction, following nine months of negotiations with the US and Britain.
*25 March 2004: Tony Blair visited Libya, and endorsed a prisoner-transfer agreement with Col Gadhafi.
*29 May 2007: BP and Libya signed the biggest oil exploration deal in the company's history. The deal now needed to be ratified.
n 26 July 2007: Jack Straw, the Justice Secretary, wrote to his Scottish counterpart, Kenny MacAskill, saying that he favoured an option that would exclude Megrahi from the transfer agreement.
*19 December 2007: Straw wrote to MacAskill saying that the attempt to exclude Megrahi from the transfer agreement was being abandoned in the national interest.
n 4 February 2008: Libya ratified the exploration deal with BP, after nine months' delay.
*20 August 2009: Megrahi released on compassionate grounds.Reuse content