The comment followed a furor over allegations that oil giant BP played a role in Abdel Baset al-Megrahi's release last year. Al-Megrahi, 57, is the only person convicted of carrying out the 1988 bombing of a U.S. airliner over Lockerbie, Scotland, which killed 270 people.
"The new British government is clear that Megrahi's release was a mistake," said Ambassador Nigel Sheinwald in a statement. "Claims in the press that Megrahi was released because of an oil deal involving BP, and that the medical evidence used by the Scottish executive supporting his release was paid for by the Libyan government, are not true."
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Al-Megrahi was released on compassionate grounds by the Scottish government after doctors said the convicted terrorist had prostate cancer and just three months to live. Nearly a year later, he remains alive.
"A Scottish inquiry concluded in February that the medical opinion and the release was done in good faith," Sheinwald said in the statement.
BP signed a $900 million exploration agreement with Libya in May 2007, the same month that Britain and Libya signed an agreement that paved the way for al-Megrahi's release from a Scottish prison.
BP also admitted that it had lobbied the British government over a prisoner transfer deal with Libya in late 2007 but denied playing any role in the actual decision to release al-Megrahi nearly two years later.
Said Sheinwald: "The British government deeply regrets the continuing anguish that his release on compassionate grounds has caused the families of Megrahi's victims in the U.K., as well as in the U.S."