Britain is to recognise the rebel opposition as Libya's legitimate government and expel all existing Libyan embassy staff from the country, Foreign Secretary William Hague said on Wednesday.

The UK will also unfreeze 91 million pounds ($148 million) of assets held in Britain for the rebel-held oil company AGOCO.

'We are inviting the National Transitional Council to appoint a new Libyan diplomatic envoy to take over the Libyan embassy in London,' Hague told a news conference.     

'This decision reflects the National Transitional Council's increasing legitimacy, competence and success in reaching out to Libyans across the country,' he added.

He said that in line with a UN Security Council resolution, Britain is continuing to explore how to unfreeze assets to support the rebels.

'At the request of the Arabian Gulf Oil Company ... the United Kingdom is ready to make available 91 million pounds of the company's assets in the United Kingdom,' Hague added.     

'This company is operating under the control of the National Transitional Council and we are assured its activities will not benefit any listed entity under (UN) sanctions.

'We will issue licences for the use of its frozen funds to meet basic needs within Libya,' Hague said, adding the measure was designed to allow Britain to give greater practical assistance to the rebels.     

Hague has denied any shift of Britain's position towards the eventual fate of Muammar Gaddafi after he appeared to suggest earlier this month that the Libyan leader might be allowed to stay in the country as part of an eventual solution to the conflict.

'The best solution is for him to leave but this is up to the Libyan people to decide,' he said. - Reuters