The Guardian reports:

Britain is to open negotiations at the UN to unfreeze assets running into hundreds of millions of pounds to be funnelled to the Libyan rebel council that was recognised by the UK on Wednesday as the “sole governmental authority” in the country.

As the foreign secretary, William Hague, announced the expulsion of the Libyan chargé d’affaires and the eight remaining Libyan embassy staff in London, British diplomats in New York were drawing up plans to unfreeze assets covered by UN sanctions.

Britain has frozen £12bn of Libyan assets since the conflict began in February this year, the vast bulk of which will remain frozen until the regime of Muammar Gaddafi loses power. But a proportion of the assets can be released if Britain can prove that they will only be used by the Benghazi-based National Transitional Council (NTC).

The push by the UK, which has temporarily closed its embassy in Tripoli, will raise questions about whether the funds will be used to buy arms. Foreign Office sources said assets would remain frozen if there is any evidence or suspicion that they were being used to pay for arms, even for the Libyan rebels. Arms sales of any description to any quarter in Libya are banned by UN sanctions.

But a source close to the NTC said funds may be used to buy weapons. “We can’t,” a source close to the NTC told the Guardian when asked how it would make sure funds are not used to buy weapons.

The source added: “We are militarily engaged in removing Gaddafi. Therefore it would be a bit strange to say that we are happy for you to have the no-fly zone, but rather that you didn’t buy arms.

“They [the NTC] haven’t been able to meet their payroll, which is their biggest problem to keep going. They also desperately need money to buy arms, particularly in the western mountains where there is often one weapon between two fighters, who go into battle hoping to get one from the enemy or a fallen comrade.”