Foreign secretary William Hague said his government will now deal with the Libya's National Transitional Council (NTC), which represents the rebels fighting to overthrow Muammar Gaddafi's government.
"What I have announced today will allow us to give further assistance to the people of Libya and underline the message to the Gaddafi regime that their legitimacy has come to an end," Hague said.
The UK follows France and the United States by breaking diplomatic ties with Gaddafi. The countries for four months have been participating in a UN-mandated Nato mission to fly sorties over the North African country in an effort to lend support to the rebels and defend civilians from Libyan forces.
The move would pave the way for the UK to unfreeze around 100 million euros worth of Libyan assets belonging to an oil company now controlled by the NTC , the BBC reported.