Libya has indignantly denied it backed a plot to kill Saudi Crown Prince Abdullah, after Saudi Arabia said it was recalling its envoy to Libya.
Libya denies it backed a plot to kill Crown Prince Abdullah
Libya's foreign ministry said the alleged plot, which first came to light in July, had been "proven incorrect".
Meanwhile, the US said the matter "needs to be explored" and had slowed progress in improving US-Libya ties.
Correspondents say Libya-Saudi Arabia relations have nosedived since the run-up to the war in Iraq last year.
This latest row came to a head on Wednesday when Foreign Minister Prince Saud al-Faisal said he would ask the countries' respective ambassadors to withdraw over the alleged plot.
The Saudi embassy in Tripoli will remain open and Libya's embassy in Riyadh will also be allowed to remain open, he said.
"The kingdom is confining itself to these measures... in appreciation of the brotherly Libyan people, especially with the approach of the Hajj pilgrimage season," he said.
The alleged plot came to light when US investigators outlined their case against US Muslim activist Abdurahman Alamoudi in July.
Alamoudi claimed to have contacted - on behalf of the Libyan government - a group of Saudi dissidents in London plotting to assassinate Prince Abdullah.
Founder of the American Muslim Council
and president of the American Muslim Federation, he was eventually jailed for 23 years for violating US laws restricting financial dealings with Libya.
But speaking on al-Jazeera television, a spokesman for the Libyan foreign ministry said the government was "surprised that... Saudi Arabia has decided to
withdraw its ambassador from its brother Libya".
"If the recall is because of this false charge about an
assassination attempt on the Crown Prince, this has been denied and proven to be incorrect. Enough time has passed over this issue. Why wasn't the ambassador withdrawn at that time?" asked spokesman Hassouna Chaouch.
Mr Chaouch said Libya would raise the issue with Arab League Secretary-General Amr Moussa.
But the US State Department said the Libyan explanation was "not sufficient for us, or any others, to reach a definitive judgment on the matter at this point".
"I would say that the reports and the information has already impacted the speed at which we can move forward with Libya and will continue to until it's cleared up," said spokesman Richard Boucher.
He said the issue was delaying steps to see Libya removed from the US list of Terrorism Sponsors.
Relations between the two states have a history of tension ever since Colonel Muammar Gaddafi overthrew the Libyan monarchy in 1969 and declared himself a revolutionary leader committed to fighting conservative Arab regimes - with Saudi Arabia at the top of the list - says the BBC's Arab affairs analyst Magdi Abdelhadi.
Ties improved during the 1980s but nosedived again during the run-up to the Iraq war, he says.
Then, in a summit spat broadcast live on Arab satellite television, Colonel Gaddafi publicly accused the Saudis of betraying their Arab brethren and of being subservient to the Americans. Crown Prince Abdullah reacted angrily, calling him a liar.