According to Al-Sharq Al-Awsat, a Pan-Arab daily published in London, Libya accuses Israel of not displaying the minimum level of political ethics in international relations.
The newspaper quotes a senior government source in Jerusalem as saying the letter is a harsh blow to Israeli Foreign Minister Silvan Shalom's efforts to open a new page in relations between Israel and the Arab world.
But the Foreign Ministry told Israel Radio on Friday it had no knowledge of such a letter.
Wednesday, the media reported Foreign Ministry official Ron Prosor had visited Paris to meet with an Arab official to investigate the possibilities of establishing ties with Tripoli.
Earlier in the week, two Israeli parliamentarians confirmed that they and a number of Palestinian officials had met with the son of Libyan leader Muammar Gadhafi in a European country in August.