The arms embargo and other sanctions were imposed on Libya on 15 April 1992 to force the handover of two intelligence agents accused of blowing up Pan Am Flight 103 over Lockerbie in December 1988. The bombing killed 270 people.
The equipment seized consisted of eight steel chemical-reactor vessels. It was being shipped to a Libyan factory in Benghazi which makes liquids for oil exploration.
British diplomats have told the UN Security Council's sanctions committee that the equipment could have been used to produce hundreds of tons of mustard gas and nerve gases. The committee meets every 120 days to review the embargo.
The Libyan leader, Colonel Muammar Gaddafi, had denied Libya was developing chemical weapons. However, the West believes Libya began making poison gas at a plant in Rabta, south-west of Tripoli.
The Libyans said the parts ordered from Malaysia were to produce lubricating mud for drilling bits. But in March a British diplomat told the sanctions committee that they were too highly engineered for that and could be used in making chemicals for poison gas.
Last year the German government confirmed it had been told Libya was building a second poison gas plant at Trahona, said to be a copy of the Geman-designed plant at Rabta.
British concern dates to the end of 1989, when a British company was asked to provide the eight vessels for chemicals. The deal was blocked, and the Libyans turned to a Malaysian company, which sub-contracted the work to a local subsidiary of the British company.
The Malaysian authorities were asked to prevent the contract being completed, but refused, arguing that the equipment was for civilian use.