"This accord represents a qualitative leap in relations between the two countries and proves that Libya has transformed its weapons of mass destruction into constructive weapons," Maatuk Maatuk, the Libyan public works minister, said at Wednesday's signing ceremony in Tripoli.
"We are telling the world that we are moving towards the development of Libyan nuclear technology for peaceful purposes."
The Libyan government said it hopes to use nuclear energy to power desalination plants that could provide water for arid areas of the country.
In a dramatic diplomatic move in December 2003, Libyan leader Muammar Gaddafi announced that Libya was giving up efforts to build nuclear, chemical and biological weapons after months of secret negotiations with Britain and the US.
Since then, Western leaders have visited Gaddafi in order to stake out their place in the country's newly opened economy.
Jacques Chirac, the French president, visited in November 2004 after Libya agreed in January of that year to pay compensation over the downing in 1989 of a French airliner over Niger.
Libya, which also agreed a compensation package for victims of the 1988 Lockerbie airliner bombing, has never admitted responsibility for either incident.