The deal — worth about £2 billion (€2.34bn) — was close to being finalised last month when protests broke out against the Gaddafi regime.
Nothing has been paid out so far, according to Jason McCue, lawyer for the survivors and the families of those killed by the IRA in the North and in Britain.
However, a number of American victims of Libyan- sponsored terrorism have been paid up to $2 million (€1.45m) each under a separate deal with the US.
Under the agreement, brokered by a cross-party group of British MPs and led by Jeffrey Donaldson of the Democratic Unionist Party, around £800m was to go directly to victims of IRA violence. If it goes ahead, among the first to benefit will be the 147 families of those caught in atrocities in which Semtex, the plastic explosive supplied by Libya, was used.
Calling for the UN to set up a war crimes tribunal to bring Gaddafi to justice, Mr McCue said the campaign for compensation was focused on the Libyan leader, not the Libyan people, but it would continue whatever the outcome of the protests.
“My heart goes out to the families of victims,” he said. “Those who had the misfortune to have lost loved ones in Northern Ireland and Britain have shown extraordinary forbearance. After years of legal turmoil in pursuit of Gaddafi, they are actually getting behind the Libyan people and are not against them in these protests, but they do want to see justice done.”
Although the Sunday Times reported an agreement had been concluded last June, Mr Donaldson, said this was not correct.
“There has been no deal concluded. Negotiations were at a crucial stage when the current unrest began so nothing has been finalised.”
Mr Donaldson said even if there is regime change in Libya, whoever rules the country must honour international obligations and make good the settlement.
IRA victims welcomed the prospect of a payout. Anna Dixon, 73, who with her husband Jim, also 73, was injured at Enniskillen, said: “Jim’s injuries were horrendous — the doctors said it was as if his head had been crushed like an eggshell. He can’t close his mouth easily and he is in constant pain due to nerve damage. The doctors say they can do nothing. I would like some of this money to go to pain research.”
Michael Gallagher, whose son Aidan was killed at Omagh, said: “A payment by Libya would be a recognition that people have unjustly suffered because of their interference in Ireland. It sends a message that anybody who supports terrorism in the future that, no matter how long it takes, victims will pursue them.”
Links between the IRA and Colonel Gaddafi are thought to stretch back as far as 1972, and Libya is understood to have supplied the Republican group with Czech-made Semtex in the 1980s, as well as thousands of rifles, small arms and flame throwers.
The Foreign Office in London would not be drawn on claims that a trade deal between Britain and Libya was expected to be part of the settlement.