Prime Minister David Cameron said the only man ever to be convicted of the Lockerbie bombing should "never have been released from prison" after his family said he had died in Tripoli.
Abdelbaset Ali al-Megrahi was sentenced to life in prison for the 1988 bombing of a US airliner over the Scottish town which claimed 270 lives.
He was later diagnosed with terminal prostate cancer and according to his family died in Libya - two years and nine months after his controversial release from jail on compassionate grounds.
The Prime Minister today dismissed calls for an inquiry into Megrahi's conviction which Libya always contested.
Megrahi was released from jail on August 20 2009 and sent back to Tripoli with an estimated three months to live.
The decision to free him by Scottish Justice Secretary Kenny MacAskill provoked an international storm.
First Minister Alex Salmond argued today that "the Scottish Government released him on compassionate grounds" after following the due process of Scots Law.
The bombing of Pan Am flight 103, travelling from London to New York four days before Christmas, killed all 259 people on board.
Eleven residents of the Dumfries and Galloway town also died after the plane crashed down on their homes in Britain's biggest terrorist atrocity.
Political Correspondent Lucy Manning reports:
The mother of a young aspiring actress killed in the atrocity said she hoped the convicted terrorist suffered a "painful, horrible" death, while a spokesman for some of his British victims said his death was "deeply regretted".
Former Liberal Democrat leader and Scottish QC Sir Menzies Campbell said: "This brings to a satisfactory end a controversial series of events which began with the terrible and tragic loss of life over Lockerbie.
"The decision to release Mr Megrahi was ill-judged and undermined confidence in the Scottish legal system.
"Answers to many of the outstanding questions have died with Mr Megrahi."
Jim Swire, whose daughter Flora was killed in the bombing, maintains there is evidence yet to be released that will prove Megrahi's innocence. Dr Swire said he was "very glad that the last part of his life was led with his family back in his own society in Tripoli".
David Ben-Ayreah, a spokesman for some of Megrahi's British victims, described Megrahi as the "271st victim of Lockerbie".
"I was told seven days ago by very good sources in Tripoli that he was slipping in and out of quite deep comas, that the secondary tumours had affected his abdomen and lower chest, and that he had had three blood transfusions," he said.
"His death is to be deeply regretted. As someone who attended the trial I have never taken the view that Megrahi was guilty."
Megrahi had rarely been seen since his return to Tripoli but was spotted on Libyan television at what appeared to be a pro-government rally in July.
UK Foreign Secretary William Hague said the public appearance confirmed that a "great mistake" was made in releasing him from jail.
Prior to his death reports suggested his prostate cancer had spread to his neck. Last month Megrahi was reported to have been admitted to hospital for a blood transfusion.
The Foreign Office is investigating reports the Lockerbie bomber has died. East Renfrewshire Council is also looking into the claims, a spokesman said.