Intelligence suggested that the IRA had resumed links with Libya just two years before the signing of Good Friday Agreement.
Under the reign of Muammar Gaddafi, the African country is reported to have supplied the Provos with a huge arsenal of weapons, including guns, ammunition and Semtex.
The links between the IRA and Libya, which is believed to have gifted the terrorists £2million to finance their campaign, were established during the Seventies.
Newly declassified secret files from the National Archives reveal fears that the deadly links between them had been re-established.
A secret April 1996 letter from then Prime Minister John Major's Principal Private Secretary John Holmes to Dominick Chilcott at the Foreign and Commonwealth Office thanked him for "additional evidence about possible Libyan links with the IRA".
It read: "This is interesting collateral for the earlier report, even if it still falls some way short of confirmation.
"If and when the renewed links are confirmed, the Prime Minister believes that we need to think about action on at least two diplomatic fronts.
"First, we would presumably need to revisit the assurances given by the Libyans to the UN Secretary General that their involvement with the IRA had ceased some time ago.
"Second, we should be ready to tell the Americans about these renewed links as part of our campaign to disabuse them of illusions about the IRA/Sinn Fein."
Mr Chilcott had been asked to keep the authorities "informed of any evidence which might point to a renewed Libyan threat to UK interests".
He wrote: "I, therefore, enclose a copy of a telegram reporting a possible resumption of Libyan links with PIRA which we have just received."
An earlier confidential document from the Foreign Office, dated November 16, 1995, said "the Libyans have replied to our latest set of questions about their links with the PIRA".
Following a redacted sentence, the note said the "five sets of answers given by the Libyans have largely met our expectations", but elsewhere in the file officials conceded there remained gaps and omissions in the information given.
It added: "To close this chapter in our relations with the Libyans, we are now arranging to tell the UN Secretary General where things now stand and to ask him to inform the Libyans.
"We shall, at the same time, remind him that the material and financial support given to PIRA added significantly to its paramilitary capabilities at a time when it was waging a terrorist campaign against British interests.
"We are making it clear that, while we recognise that Libyan co-operation on this is a positive step towards its renunciation of terrorism, it represents but one of a number of demands in the Security Council resolutions.
"The sanctions regime... must remain in force until all the demands in the resolutions are met.
"In considering our reaction to Libya's answers, we have considered our overall policy on (the) Lockerbie (attack).
"There is continuing pressure on us to soften our line and the Libyans have been assiduously putting around various 'compromise' proposals.
"The present stalemate is not satisfactory, since we should like to try the two accused and secure convictions.
"But the likelihood of Gaddafi handing them over is negligible and the status quo has the merit of at least constraining his activities."