Lord Mandelson met Colonel Gaddafi’s son at a Corfu villa only a week before the announcement that the perpetrator of the Lockerbie bombing could be released from prison, the Financial Times has learnt.

Seif al-Islam Gaddafi, widely seen as the Libyan leader’s most likely successor, was a fellow guest of the Rothschild family at its Greek property a fortnight ago in a wider annual gathering of powerful friends.

Stays by the two men overlapped by only one night, according to Lord Mandelson’s spokesman.

He said the pair spoke only briefly but they did discuss Abdelbaset Ali al-Megrah. “There was a fleeting conversation about the prisoner; Peter was completely unsighted on the subject,” he said.

It was only one week later that news emerged that Mr Megrah could get an early release on compassionate grounds because he is suffering from terminal cancer.

Lord Mandelson said through his spokesman that he had had no involvement in the decision and only learnt of it through the BBC. Mr Megrah’s possible release was a decision entirely for the Scottish government rather than London.

“It was entirely coincidental,” the spokesman said.

The government is likely to portray the meeting as unexceptional because relations between the UK and Libya have normalised in recent years.

It was in 2003 that Muammer Gaddafi surrendered his weapons of mass destruction programmes and helped deliver the Lockerbie bombing suspects for trial. In November 2008 he agreed a $1.8bn (£1.1bn) compensation package for bomb victims.

Libya’s role as a large oil producer, with the potential for much greater mineral discoveries in the future, has made it a magnet for international business – including British oil companies.

“Libya is . . . very much back in the mainstream of international affairs,” the British ambassador to Libya, Sir Vincent Fean, said this summer.

However, news of the meeting could renew questions about Lord Mandelson’s affinity for rich and powerful individuals and his ability to create controversy.

Seif Gaddafi antagonised relatives of some of the 270 Lockerbie victims last year when he said in a BBC interview that they were “very greedy” and “trading with the blood of their sons and daughters”.