Tony Blair could face legal action amid claims he "connived" with Colonel Gaddafi to block a multi-million pound compensation claim by IRA victims.
An email is said to show the former prime minister intervened in a long-running legal action from victims of Libyan-sponsored terrorism.
The email suggests Mr Blair (below) helped to broker an agreement between Gaddafi and US President George W Bush, which saw Libya pay a one-off £1bn in compensation to US victims of terrorism to settle all actions.
A spokesman for Mr Blair branded the claims "malicious".
The Libyan regime supplied Semtex for IRA attacks, said to include the 1987 Enniskillen bomb which killed 11 people.
Lawyers said the disclosure of the email, reported in the Sunday Telegraph, could form the basis for legal action in the UK.
The note, compiled by Sir Vincent Fean, a former ambassador to Libya, described how Mr Blair had approached President Bush on Gaddafi's behalf following an American court ruling that the proceeds of Libyan business deals could be seized to compensate Libyan terrorist attack victims.
Mr Bush subsequently approved legislation which allowed Libya to make a one-off payment of £1bn to US victims of Libyan state-sponsored terrorism, which gave the regime immunity from all terrorism-related law suits.
It meant the claims of British victims of the IRA, who had been suing Gaddafi's regime in the US courts, were invalidated.
Colin Parry, whose 12-year-old son, Tim, died when an IRA bomb exploded in Warrington, accused the UK government of failing British victims.
DUP MP Jeffrey Donaldson said he backed legal action in the absence of clear answers from Mr Blair.
"I know innocent victims who have been pursuing compensation from Libya are horrified to discover that it was our own Prime Minister who excluded British victims from the settlement," he told the Belfast Telegraph.
A spokesman for Mr Blair said there was no evidence to suggest he had intervened.
"This attempt, backed by no evidence whatever, to suggest that Tony Blair 'interfered' with the terms of compensation is malicious and wrong," she said.
"He has never had anything to do with it and he has never discussed any such terms with President Bush. The email you reference merely expresses government policy of the time which was to re-engage with the Libyans after they gave up their WMD programme and chose to cooperate rather than sponsor terrorism."
Sir Vincent Fean, a former ambassador to Libya, wrote: "On USA/Libya, TB should explain what he said to President Bush ... to keep his promise to Col Q [Gaddafi] to intervene after the President allowed US courts to attach Libyan assets."
He added: "He [Blair] could express satisfaction at the progress made in talks between the US and Libya to reach a Govt to Govt solution to all the legal/compensation issues. It would be good to get these issues resolved, and move on.
HMG is not involved in the talks, although some British citizens might be affected by them (Lockerbie, plus some UK Northern Irish litigants)."