The UK has taken steps to expel five Libyan diplomats, Foreign Secretary William Hague has said.
Updating MPs, Mr Hague said the five - who include the military attache - "could pose a threat" to UK security.
David Cameron said the UK was not ruling out providing arms to rebels in "certain circumstances" but no decision had yet been taken.
Shadow foreign secretary Douglas Alexander questioned the legality and "advisability" of such a move.
The rebels are continuing to lose ground to forces loyal to Colonel Gaddafi and are retreating from their former strongholds along the eastern coast of Libya.
Meanwhile an unconfirmed report from Tunisia's official news agency said the Libyan foreign minister, Moussa Koussa, flew to London on Wednesday afternoon.
The Foreign Office said it was unaware of the visit.
Earlier, the prime minister's official spokesman rejected suggestions the UK's stance on the possibility of supplying weapons to them had shifted in recent weeks.
The coalition military action is aimed at enforcing a no-fly zone over Libya and protecting civilians from attacks by forces loyal to its leader Col Gaddafi. It has denied air strikes are meant to provide cover for a rebel advance.
The foreign secretary's statement came after the allies held a summit in London on Tuesday to discuss Libya's future.
Mr Hague said: "To underline our grave concern at the [Gaddafi] regime's behaviour, I can announce to the House that we have today taken steps to expel five diplomats at the Libyan embassy in London, including the military attache.
"The government also judged that, were these individuals to remain in Britain, they could pose a threat to our security."
The foreign secretary said the London conference on Libya "showed that we are united in our aims, seeking a Libya that does not pose a threat to its own citizens or to the region, and in working with the people of Libya as they choose their own way forward to a peaceful and stable future".
On the military action, Mr Hague said the UK had been involved in more than 160 aerial missions over Libya since operations began on 19 March, as well as missile strikes.
"We are continuing to target military hardware that Gaddafi is using to kill his own people," he said.
Responding to Mr Hague's statement, the shadow foreign secretary also said the government needed to find out more about the rebel forces, amid reports that some may have links to al-Qaeda.
Mr Alexander said: "There are uncertainties, that's why I think it is important that the government and other governments try and find out more about the rebel forces.
"Would you agree we must proceed with very real caution on the question of armaments?"
In reply, Mr Hague said the government would investigate the reports about the rebel forces, but he believed they were "sincere in their commitment to an open, pluralistic Libya".
On Mr Alexander's concern over the legality of supplying weapons, Mr Hague said the UN resolution allowed "for all necessary measures to protect civilians" to be taken.
At Prime Minister's Questions, Mr Cameron covered similar issues.
He said the UN resolutions "would not necessarily rule out the provision of assistance to those protecting civilians in certain circumstances".
He said: "The legal position is clear that the arms embargo applies to the whole territory of Libya.
"But at the same time UNSCR 1973 allows all necessary measures to protect civilians and civilian-populated areas... We do not rule it out but we have not taken the decision to do so."
Senior rebel general Suleiman Mahmoud has told BBC's Newsnight programme that he needs help from the coalition forces.
"If the allies, if the USA and others agree to help us... we will them throw out in two weeks, but without their help, we will need more than six months."
President Barack Obama has also indicated the US is contemplating arming the rebels.
But there have been differing views on its legality.
Former Liberal Democrat leader Sir Menzies Campbell has joined the shadow foreign secretary in urging caution.
He said the legal position "was by no means clear" and the political consequences of any policy would be "very difficult to predict".
Russia's Foreign Minister also said that in Moscow's view the international coalition did not have the right to arm the anti-Gadaffi opposition.
Meanwhile, it has emerged that the UK has helped repatriate more than 12,500 migrant workers from Libya and provided emergency relief items, such as tents and blankets.
International Development Secretary Andrew Mitchell said the efforts had helped prevent "a logistical crisis developing into a humanitarian emergency".