Diplomats citing a report from the International Atomic Energy Agency said on Friday the country was able to "separate a small amount of plutonium."
The report did not specify the amount, but it appeared to be less than the approximately three kilogrammes required to make a nuclear bomb.
The report was prepared by IAEA Director General Muhammad al-Baradai ahead of a board of governors' meeting of the agency next month. A separate report on Iran is due in the next few days.
Revelations in the confidential report that Libya was able to process plutonium, which is used in nuclear warheads, shed new light on how far the country was able to progress in its secret weapons programme.
Libya announced in December it had engaged in researching programmes of mass destruction and promised to scrap them.
While US and British intelligence had spoken of a fairly advanced programme, the IAEA initially described Libya's nuclear activities as at the beginning stage.
The report also said Libya "imported nuclear material and conducted a wide variety of nuclear activities which it had failed to report," to the agency as required by agreements it had signed with the IAEA, according to the diplomats who spoke to the Associate Press.
Libyan leader Muammar Qadhafi
Much of the activity focused on enriching uranium, the report said. That, along with producing plutonium, is one way to develop the nuclear material used in warheads.
Between the early 1980s until the end of 2003, "Libya imported nuclear material and conducted a wide variety of (clandestine) nuclear activities," said the report.
Libya "failed to declare imports of UF 6" in 1985, 2000 and 2001, it added. UF6 is a uranium compound used in the enrichment process.
A Sri Lankan businessman, Buhary Abu Sayyid Tahir, who is implicated in the nuclear black market, has said Pakistani scientist Abd al-Qadir Khan, the head of the illicit network supplying nations with nuclear technology, has told him of shipments to Libya of UF6.
After coming out in the open in December, Libya also surrendered drawings of a nuclear warhead to US and British experts.
The blueprints and accompanying documents are now in the United States under the seal of the International Atomic Energy Agency.