The UN Security Council lifted sanctions on Libya's central bank and a key investment bank freeing tens of billions of dollars to ease a post-Kadhafi cash crunch.
The United States immediately announced it would unblock more than $30 billion dollars of assets of the Central Bank of Libya and its subsidiary, the Libyan Foreign Bank (LFB). Britain said it would release more than $10 billion.
An estimated $150 billion of assets were frozen around the world in February after the Security Council ordered sanctions against late strongman Moamer Kadhafi, who was overthrown at the end of an uprising in which tens of thousands died.
The new Tripoli authorities have stepped up calls in recent weeks to release money to pay for salaries and key services amidst a growing threat of economic deadlock.
Prime Minister Abdel Rahim al-Kib and National Transitional Council chief Mustafa Abdel Jalil said the release of funds was "essential for the economic stability of Libya" in a joint letter sent to the council to plea for the freeze to be ended.
An official request for the lifting of sanctions was made one week ago and no objections were made by any of the council's 15 members enabling the assets freeze to be lifted on Friday.
On top of more than $30 billion blocked in US accounts, Britain's Foreign Secretary William Hague said his government would immediately act to free about 6.5 billion pounds ($10 billion) held in Britain.
The easing of the sanctions "marks another significant moment in Libya’s transition," Hague said in a statement.
"It means that Libya's government will now have full access to the significant funds needed to help rebuild the country, to underpin stability and to ensure that Libyans can make the transactions that are essential to everyday life."
Hague said Britain would pressure the European Union to quickly release frozen sums.
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The White House said it had "rolled back most US sanctions on the government of Libya" -- unlocking virtually all Libyan government assets within US jurisdiction.
"These measures, along with the steps taken today by the United Nations Security Council, will allow the Libyan government to access most of its worldwide holdings," the White House said in a statement.
A global arms embargo and an assets freeze on Kadhafi's family and associates remains in place, along with financial institutions including the key Libyan Investment Authority sovereign wealth fund.
Central banks around the world had been nervous about releasing funds frozen under sanctions because they considered there were not sufficient guarantees about where the money would go.
"There are huge amounts being held and treasuries were nervous they could face legal action later," one western diplomat said. "But now the central bank is operating again, free of Kadhafi, we can have some confidence."
Diplomats warned however that the caution meant that even with the lifting of sanctions Libya may still have to wait for its missing billions.
A UN resolution in September eased sanctions on Libya's national oil company.
Fighting essentially ended in Libya when Kadhafi was killed in October and the UN Security Council authorized the release of about $18 billion to help the government. But by late November only about $3 billion of that had been made available to Tripoli because of the legal problems.
Libyan Foreign Bank was until recently more widely known as the Libyan Arab Foreign Bank. Entirely owned by the central bank it was set up to carry out transactions abroad, especially for Libya's foreign trade.
Libyan officials say the country, despite its oil wealth, desperately needs cash to pay for services and get the post-Kadhafi economy moving again.
In their letter to the Security Council, Jalil and al-Kib said lifting sanctions was "essential for the economic stability of Libya; for confidence in the banking sector; for the smooth execution and settlement of both domestic and international banking transactions; and to underpin the social and micro stability of the new Libya."