Washington - The United States late Friday confirmed that Libya has paid 1.5 billion dollars into a US-controlled account to compensate US victims of a 1988 terrorist attack and other attacks, saying the step had removed "the last obstacle to a normal relationship between the United States and Libya."

"We will work on that now going forward," said David Welch, assistant secretary of state for near east affairs, in a briefing.

The payment follows the meeting in September in Tripoli between US Secretary of State Condoleezza Rice and Libyan leader Moamer Gaddafi, who formally ended a half century of hostility.

US and Libyan relations began warming in 2003 when Gaddafi agreed to give up weapons of mass destruction programmes and denounce terrorism.

The United States subsequently ended sanctions, removed oil-rich Libya from its terrorist blacklist and re-established diplomatic relations.

The groundwork for Friday's announcement was finalized in August, when Libya agreed to provide hundreds of millions of dollars into the fund to compensate the families of those who died in the 1988 bombing of a Pan Am flight over Lockerbie, Scotland, and two US soldiers killed in the 1986 bombing of a Berlin disco.

The agreement on the money means cases before US courts will be dismissed and that Libya will have its immunities restored before US courts, Welch said.

The US decision to restore ties has angered families of the Pan Am victims who still regard Gaddafi as a murderer who should not benefit from positive relations with Washington.

The 1.5 billion dollars is to be shared among more than 400 victims, mostly American, of about a dozen terrorist attacks in the 1980s, including the relatives of the 270 people killed on Pan Am Flight 103, the New York Times reported.

Earlier Friday, convicted Lockerbie bomber Abdelbaset Ali Mohammed al-Megrahi applied for interim liberation pending the outcome of an appeal, British media reported.

The former Libyan intelligence agent, 56, is suffering from prostate cancer and was temporarily transferred from his prison cell in Greenock, Scotland last month to hospital.

Al-Megrahi is serving a life sentence for the Pan Am bombing. (dpa)