Justice Secretary Jack Straw told Britain's Daily Telegraph newspaper that trade and an oil exploration deal between BP and Libya were factors in deciding whether to make Abdelbaset Ali Mohmet al-Megrahi eligible for transfer to a prison back home.
However, his spokesman insisted Megrahi's release was not agreed because any possible transfer was always subject to a veto by the Scottish authorities.
Asked if trade and oil were part of the discussions, Straw said: "Yes, a very big part of that. I'm unapologetic about that... Libya was a rogue state. We wanted to bring it back into the fold.
"And yes, that included trade because trade is an essential part of it and subsequently there was the BP deal."
Megrahi, the only person convicted of the 1988 bombing of a plane over the Scottish town of Lockerbie which killed 270 people, was released last month on compassionate grounds because he is terminally ill.
Scotland rejected a prison transfer for Megrahi. Yet London has been forced to deny allegations that it struck a deal with Libya to free him in return for improved trade ties.
Documents released this week show Mr Straw initially opposed including Megrahi in the prison transfer agreement due to opposition from Scotland - but changed his mind, citing "wider negotiations" with Tripoli.
At the time, talks on the ratification of a huge oil deal between BP and Libya had become bogged down.
The $US900 million ($1.07 billion) deal was ratified in January 2008 shortly after Mr Straw's change of mind.
Libyan Foreign Minister Musa Kusa said in an interview that trade had nothing to do with Megrahi's release.
"You should not do an injustice to the British government," he told The Times from Tripoli.
"It was nothing to do with trade. If we wished to bargain we would have done it a long time ago."
BP said on Friday it had lobbied Britain to speed up the agreement with Libya to improve business relations, but denied pressing for Megrahi to be released.
Source: The Australian