Prime Minister Boris Johnson has said getting justice for victims of IRA attacks linked to Libyan explosives will be "very tough".
He was speaking as he was grilled by senior MPs at the House of Commons Liaison Committee yesterday.
The IRA received secret shipments of weapons from Libya during Muammar Gaddafi's time as dictator, including Semtex for several notorious bombings.
Previous efforts to secure payouts for victims of the paramilitary group's campaign have failed, despite Libyan assets having been frozen in the UK. Around $11bn was seized by the UK government after the 2011 collapse of the Gaddafi regime.
Ministers are facing calls to release a report, by government-appointee William Shawcross, on compensation for victims of IRA attacks involving Libyan-supplied weapons. When quizzed yesterday by Simon Hoare, chair of the NI Affairs Committee, Mr Johnson said there are "many great difficulties" in terms of getting a satisfactory solution.
He said: "It has proved extremely difficult to decide exactly who might be eligible for these funds and there's a great deal of controversy surrounding that. It's also extremely difficult to find a way, given the current precarious situation in Libya, of extracting the funds." He added: "Libya is basically a totally divided state. At the moment there are some faint signs of progress but until we have a government that we can really work with in Libya, it's difficult to make progress on freezing assets. The work of William Shawcross is valuable and important for families in Northern Ireland but I'm afraid we are some way off having the result that we might hope for."
Mr Johnson's comments come ahead of the latest stage in a legal bid by victims to sue Libya for supplying Semtex to the IRA.
Thirteen summons have been issued at Belfast's High Court, aimed at forcing the PSNI to confirm the plastic explosive was used in deadly Troubles attacks.
A hearing is due to take place later this month as part of wider attempts to secure permission to formally serve proceedings on the State of Libya.
Legal firm KRW Law is mounting the initiative on behalf of a number of victims, including Seamus Sullivan, who was injured in an attack at Falls Baths on the city's Falls Road in 1988.
Compensation claims are also being prepared in connection with the 1987 Remembrance Day bombing in Enniskillen, the so-called 'Good Samaritan' attack in Londonderry in 1988, and the Shankill Road bombing in 1993.
Solicitor Kevin Winters from KRW Law revealed the new attempts to break the impasse, saying: "The delay on the report's findings, allied to the ongoing refusal by police to release basic information, points to a wider systemic failing by the British Government. That collective failing needs to be addressed now."
Mr Winters added: "We have written to the NI Affairs Committee to urge them to use all their powers to compel the Government to change its tune. In advance of the pending court hearings we also hope the PSNI will take a more flexible stance on the applications to release vital information that will help bring closure for many victims."