Lord Mandelson should use his friendship with the son of Colonel Gaddafi to help negotiate compensation for people injured by IRA bombs, a victims’ campaigner has said.

Willie Frazer, who lost his father and two uncles during the Troubles, said he was “sickened” by reports that the former Northern Ireland Secretary of State had attended a shooting party with Saif al-Islam Gadaffi in England earlier this week.

He said: “At the minute, at the very least it is distasteful for that man, Lord Mandelson, to be affiliating himself with Colonel Gaddafi.

“Has he forgotten what happened to British citizens and British victims? Until that’s dealt with there should be some respect for the people that have lost their lives and given their lives for the defence of British cities.”

Lord Mandelson appeared to defend the friendship stressing the importance of “integrating” Libya.

However Mr Frazer added: “It is important to integrate Libya but there has to be recognition and redress for what they did.

“There are negotiations going on at the minute and if Lord Mandelson is as close to these people as it seems, then why is he not sitting round the negotiating table trying to help British citizens?”

The UK Business Secretary refused to confirm he had been present at the event at Lord Rothschild's Waddesdon Manor, Buckinghamshire, but categorically denied being involved in the shooting of any pheasants.

Speaking at Williams Formula One's Oxfordshire headquarters after a tour of the factory, Lord Mandelson said: “I, and other members of the British Government think it's very important indeed that we integrate Libya, a former terrorist state, one that we cannot describe as part of the international community in any form.

“It's very important that we integrate that state, and not ostracise it.”

Lord Mandelson and Saif al-Islam Gaddafi reportedly met at Lord Rothschild's villa in Corfu, days before the announcement earlier this year that Lockerbie bomber Abdelbaset Ali Mohmed Al Megrahi was to be freed on compassionate grounds. Saif Gaddafi later accompanied the dying terrorist back to Libya.

A Conservative frontbencher said victims of Libyan-sponsored terrorism would be “sick to the stomach” at reports of the country house social event.

Conservative Scotland spokesman Ben Wallace said: “The hundreds of victims of Libyan Semtex will be sick to the stomach to see Lord Mandelson gallivanting around the countryside with Gaddafi's son.”