The Government has rejected calls for a UK reparations fund for victims of Libyan-sponsored IRA attacks.
Compensation claims are a private matter and the Foreign Office is helping those affected pursue claims with the North African country's authorities, the official response added.
MPs said it would be "deeply disappointing" to victims of Colonel Muammar Gaddafi-sponsored republican terrorism.
Kate Hoey, a senior Labour member of the Northern Ireland Affairs Committee at Westminster, said: "The Government response is as unsurprising as it is unacceptable.
"They are telling people to seek justice on their own, to bear the cost and overcome the language barrier of obtaining compensation directly from the Libyan Government.
"There is a duty to represent the victims, just as the US and German governments fought for compensation for their citizens."
A previous Libyan regime armed the Provisionals with massive amounts of weaponry, extending the Northern Ireland conflict and causing enormous human suffering, the committee said in a report published earlier this year, which recommended the reparations fund be established.
It held lengthy hearings with victims of IRA bombings which used Libyan Semtex plastic explosives. These included the bombing of a Harrods department store in 1983, the bombing of a Enniskillen Remembrance Day ceremony in 1987 and bombings in Warrington in 1993, and in London's Docklands in 1996.
The bereaved and injured are pressing for UK Government support in their campaign for compensation paid out of the large number of frozen assets seized from the toppled Gaddafi administration.
While the USA, France and Germany negotiated multi-million-pound settlements with Gaddafi for its citizens impacted by Libyan-sponsored terrorism, the previous Labour government in the UK has been heavily criticised for not striking a similar deal.
The current Government said it considers compensation claims to be private matters and that the Foreign Office facilitates victims to engage with the Libyan authorities to pursue compensation. The official response said it was not in the UK's national interest to use political or financial support to Libya as leverage to secure recompense for victims.
A Government statement said: "The Government notes the committee's recommendation that the UK should establish a fund to provide financial compensation and support specifically to the victims of Gaddafi-sponsored terrorism, while simultaneously taking forward negotiations with the Libyan authorities.
"HMG has considered in detail the feasibility of establishing such a fund and at this stage has concluded that it is not a viable option.
"The Government also notes the potential challenges of making additional UK resources available specifically to the victims of Gaddafi-sponsored IRA terrorism, which would need to be considered carefully against Government support to victims of terrorism more generally, including in Northern Ireland."
It said it continued to raise the issue of compensation for victims of Gaddafi-sponsored IRA terrorism with the Libyan Government at the highest levels.
Foreign Secretary Boris Johnson most recently raised this with Prime Minister Fayez al Serraj during his visit to Libya on 4 May 2017 and again when visiting Tripoli on 23 August 2017.
The official response said compensation from Libya was possible in cases like the Lockerbie aircraft bombing because of evidence the attacks were planned and executed directly by the Libyans.
It added: "By contrast, Libya was a third party in IRA terrorism: the Gaddafi regime provided support to the IRA but did not direct or carry out the attacks itself.
"This in no way lessens Libyan responsibility, but makes it more challenging to pursue compensation."