Libya will withdraw $7 billion of assets in Swiss banks and stop supplying it with oil to protest against poor treatment of Libyan diplomats and businessmen, Libyan news agency JANA said.
Tripoli will "also put an end to all economic cooperation with Switzerland" in protest at the "poor treatment of Libyan diplomats and businessmen by the canton of Geneva," it quoted an unnamed foreign ministry official saying.
The north African country first threatened to halt oil deliveries after a son of leader Moamar Kadhafi, Hannibal, and his wife Aline were arrested in their luxury lakeside hotel suite on July 15 after two servants claimed they had been abused by the couple.
The Libyan threat was not carried out and Swiss prosecutors closed the case last month after the two servants, a Tunisian woman and a Moroccan man who received compensation from the couple, dropped assault charges.
The case caused uproar in Tripoli and led to the detention of two Swiss nationals, who were later released. Tripoli wants a formal apology from Bern.
The agency said the Libyan decision would be revoked once the reasons for the treatment of the diplomats and businessmen had been explained.
Libyan fuel refining and distribution firm Tamoil said on Thursday that Libya, a major supplier, had stopped delivering crude oil to Switzerland.
Tamoil says it supplies 20 percent of the Swiss market, or 2.5 million tons of oil products a year, and has around 330 service stations in the country.
Staff at Libya's state Maritime Transport National Corporation announced on July 24 they were halting oil exports to Switzerland, but Swiss oil industry officials said later that supplies had not been interrupted.
A halt in Libyan deliveries would not affect supplies or prices in Switzerland as distributors would have ample time to find other suppliers, the head of the country's oil companies association, Rolf
Hartl, has told the Swiss news agency ATS.