Gordon Brown declined to press Colonel Muammar Gaddafi for compensation for IRA bomb victims out of concern that a ministerial intervention might upset relations with Libya, it emerged today.

Last year the Prime Minister met campaigners seeking a cash payout from the Gaddafi regime, which supplied Semtex explosives used by republican bomb-makers.

But he told their lawyer in a letter last October that he did not consider it "appropriate" for the Government to enter bilateral talks with Libya on the matter, citing the need for continued co-operation from the north African state on issues like terrorism.

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In a letter to the victims' lawyer Jason McCue, obtained by the Sunday Times, Mr Brown insisted that trade was not the "core reason" for his decision, but acknowledged that that it did now form a part of the UK-Libya relationship.

Downing Street rejected suggestions that Mr Brown's decision was driven by the desire to avoid derailing lucrative potential oil deals involving British companies.

"As the Prime Minister makes absolutely clear in his letter to Mr McCue, trade considerations were not a factor in the Government's decision that it would not be appropriate to enter into direct negotiations with Libya on this issue," said a spokesman for Number 10.

"The Prime Minister is sympathetic to the case put forward by the families of victims of IRA atrocities and met with a group representing them in December to listen to their concerns."

In his letter, dated October 7, 2008, Mr Brown said: "The UK government does not consider it appropriate to enter into a bilateral discussion with Libya on this matter."

He insisted that "trade" was not the "core reason" for his decision, adding: "While the UK-Libya relationship does indeed include trade, bilateral co-operation is now wide-ranging on many levels, particularly in the fight against terrorism. I believe it is in all our interests for this co-operation to continue."

The Sunday Times also published a letter sent in November 2008 by the then Foreign Office minister Bill Rammell to Jonathan Ganesh, who was injured in the 1996 Docklands bomb and now campaigns for IRA victims.

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In it, the minister identified Libya's role in providing for Britain's future energy needs as a key element of the increasingly close partnership between the countries.

Mr Rammell wrote: "Libya is now a vital partner for the UK in guaranteeing a secure energy future for the UK and is also a key partner in the fight against terrorism.

"While I recognise that this will be of little comfort to you, it is vital for the UK's present and future security that this continues."

In a later letter dated January 13 2009 to Democratic Unionist MP Jeffrey Donaldson, Mr Rammell said: "Libya's relations with the United Kingdom have developed in recent years to a point where we liaise in a number of wide-ranging areas including energy and counter-terrorism."

A Foreign Office spokesman confirmed that Mr Rammell's letters were genuine, adding: "As Bill Rammell points out in his letter, the Libyans have told us that they consider the matter closed.

"As the Prime Minister said on Wednesday, relationships between Libya and Britain matter for the security of our country. Libya has become a genuine strategic partner for the UK since its move away from nuclear proliferation and the restoration of diplomatic relations.

"It is in this context that Bill Rammell explains, as the Prime Minister did on Wednesday, that co-operation with Libya is important."

Speaking on Wednesday about the decision to release Lockerbie bomber Abdelbaset Al Megrahi, Mr Brown said that defeating terrorism and preventing nuclear proliferation were at the core of Britain's international policy, adding: "While we welcome our strategic relationship with Libya, it is these concerns - not oil or commercial interests - that have been the dominant feature of our relationship."

A Northern Ireland MP today demanded the Prime Minister tells him why he was not prepared to stand up for IRA victims in the same way former US President George Bush did for American terror victims.

Jeffrey Donaldson, the Democratic Unionist MP for Lagan Valley said: "I want to know and the people of Northern Ireland will want to know why Gordon Brown doesn't have the same desire to stand up for the victims of IRA terrorism as George Bush showed in standing up for the American victims .

"He got a multi-billion dollar deal in terms of compensation from the Libyans."

Mr Donaldson is part of a cross-party group of MPs preparing to travel to Tripoli for face to face talks with Libyan authorities about compensation for victims of IRA violence.

He had talks with Foreign Office officials last week in preparation for the trip on which he is expected to be joined by party colleague, Nigel Dodds - the Northern Ireland Finance Minister - as well as Labour MP Andrew Mackinlay and Conservative Daniel Kawczynski.

"We believe that it is important that the Libyan government hears first hand why they have a moral obligation to the victims of the IRA.

"Many towns and cities across the UK were badly damaged by the Semtex the supplied and hundreds of lives lost," said Mr Dodds.