The official said the move would allow Libyan rebels to reopen the embassy, accredit diplomats and claim control over the embassy's frozen bank accounts worth about $13 million, CNN reported Thursday.
The State Department signed the order following a formal request by the Transitional National Government to reopen the embassy and accredit former Libyan Ambassador to the United States Ali Aujali as its ambassador.
The State Department official told CNN Aujali can become the official leader of the mission after he restores his diplomatic status that was technically interrupted when he defected from the regime of Libyan leader Moammar Gadhafi.
On July 15, the United States recognized the rebel movement based in Benghazi as Libya's rightful government. In March, the State Department ordered the embassy closed and expelled diplomats loyal to Gadhafi.
The decision concerning the Libyan Embassy came as the United States told the TNC it must carry out a credible, thorough investigation into the death of its military commander, Abdel Fatah Younis, an administration official told CNN. Concerns were raised that last week's assassination may have been carried out by feuding rebel factions.
For four months, NATO aircraft have bombed Libya under terms of a U.N. mandate to protect civilians from Gadhafi. The U.S. Embassy in Tripoli closed in February and U.S. personnel evacuated by sea and air after the uprising erupted.