PRESS ASSOCIATION -- The British security service traded information with Libya in return for intelligence extracted from terror suspects under interrogation in Libyan prisons, documents discovered in Tripoli appear to indicate.
MI5 handed over details on British-based Libyans opposed to the regime of Muammar Gaddafi, which said it had seen an MI5 paper marked "UK/Libya eyes only secret".
Britain was rewarded in turn with updates on the disclosures made by suspected terrorists being questioned in Libya, the latest cache of documents indicates.
The papers, discovered by Human Rights Watch, follow others that were found in the Tripoli offices of former head of Libyan intelligence Musa Kusa, indicating the close co-operation between British intelligence and the deposed Gaddafi regime.
They also show how 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 letters are said to show that the CIA arranged the delivery of Mr Munthir to Libya but that Britain provided the intelligence tip-off.
The Foreign Office said it could not comment on intelligence matters. Prime Minister David Cameron will update MPs on the situation in Libya in an oral statement to the House of Commons later.
The Old Bailey heard during a trial in 2006 that Mr Munthir had discussed a plot to stage multiple bomb attacks on the UK with al Qaida terrorist Omar Khyam.
As the deadline for Gaddafi's surrender nears, rebel fighters are continuing to step up pressure on him. Negotiations held over the peaceful handover of a loyalist area have failed, they said.
Abdullah Kanshil, a rebel negotiator outside the town of Bani Walid, said fighters were waiting for the green light to launch a final assault.
Pro-Gaddafi forces have been given a deadline of Saturday to surrender in their strongholds of the old regime or face an attack.
The rebels have said the hardcore loyalists are a small minority inside Bani Walid, but are heavily armed and stoking fear to keep other residents from surrendering.
Meanwhile it has emerged that Britain was threatened by the Gaddafi regime that there would be "dire consequences" for UK-Libya relations if Lockerbie bomber Abdelbaset al-Megrahi died in his Scottish jail cell.
The extent of lobbying by the Libyan government leading up to Megrahi's release in August 2009 was laid bare after confidential documents were discovered by reporters in the abandoned British embassy building in Tripoli.
In one, senior Foreign Office official Robert Dixon wrote to Foreign Secretary David Miliband in January 2009 that Gaddafi wanted Megrahi to return to Libya "at all costs".
"Libyan officials and ministers have warned of dire consequences for the UK-Libya relationship and UK commercial operations in Libya in the event of Megrahi's death in custody," he wrote, adding: "We believe Libya might seek to exact vengeance."
Megrahi - the only person convicted of the 1988 Lockerbie bombing - was released on compassionate grounds after the Scottish government was told he had only three months to live. He is still alive today.