The agency reported Italian Foreign Minister Massimo D'Alema as telling Libyan leader Muammar Gaddafi at a meeting on Saturday that Italy would provide a road linking Ras Jdayr on Libya's Tunisian border to Sallum on its Egyptian border.

"The Minister made a detailed presentation on cooperation prospects between the two countries and the big initiative project that Italy will present to the Libyan people, namely the construction of a highway from Ras Jdayr to Sallum that comes as part of compensation for the Italian colonial period and in order to turn that page," Jana reported.

"The Minister renewed Italy's keen desire to promote cooperation to establish peace and ensure stability in the Mediterranean and consolidate bilateral relations," it added.

Italy, which ruled Libya from 1911 to 1943, has had difficult relations with Gaddafi since he seized power in 1969. In 1970, Gaddafi expelled Italian residents and confiscated their property.

But ties have warmed up in recent years and Rome, as Libya's main diplomatic interlocutor and trading partner in Europe, backed Tripoli's drive to mend fences with the West.

Both countries have long sought a deal on compensation for Italy's colonial policies, which included the deportation of thousands of Libyans to Italy.

A coastal highway, a project worth several billion dollars, has often been mentioned as a potential part of any agreement.

Italy imports around 25 percent of its oil and 33 percent of its gas from Libya and has a strong business presence there.

Bilateral ties have been under pressure from the flow of illegal immigrants from Libya's coast to Italy's south, and the absence so far of any reparation payments.