FILE PHOTO: A once-inhabitated apartment block, ridden with bullet holes, stands abandoned in the Libyan town of Tawergha February 21, 2013. REUTERS/Marie-Louise Gumuchian

TRIPOLI (Reuters) - Libyan families displaced from a town ransacked after the toppling of Muammar Gaddafi in 2011 will be allowed to return home in February, the U.N.-backed government said on Tuesday after more than a year of negotiations.

The deal, if implemented, would be a step toward reconciliation in the North African oil producing country, which is heavily divided between competing factions, communities, tribes and governments since 2011.

Residents of the town of Tawergha were expelled by former anti-Gaddafi rebels in 2011 in retaliation for the strongman having used their settlement as a launch pad for attacks on the western city of Misrata during the uprising.

They have been living in camps and makeshift settlements in poverty across Libya and were banned from returning home. They faced abuse and arbitrary arrest since videos surfaced purportedly showing some of them joining Gaddafi forces in 2011.

“Within the frame of achieving the national reconciliation ... as well as to develop the basics of state of law and institutions, I declare today the beginning of return of Tawergha families to their town on the first of February,” the Tripoli-based Prime Minister Fayez Seraj said in a statement.

The town, which is east of Misrata, has been a ghost town since it was looted by Misrata forces in 2011. Some 40,000 people were displaced, according to Human Rights Watch’s website.

The government will pay compensation to the relatives of those who were killed and to those who had been detained, wounded or whose homes were destroyed in the conflict, it said.

A spokesman for the Misrata city council confirmed the deal, saying it was up to the government to implement it.