The move means billions of dollars of Libyan assets frozen in US banks could be released to the rebels.

The decision was announced by US Secretary of State Hillary Clinton at a diplomatic meeting in Istanbul.

Western and Arab members of the Libya Contact Group are drawing up a plan to end hostilities, which will be presented to Colonel Muammar Gaddafi.

"The US views the Gaddafi regime as no longer having any legitimate authority in Libya," Mrs Clinton said.

"And so I am announcing today that, until an interim authority is in place, the United States will recognise the TNC [Transitional National Council] as the legitimate governing authority for Libya, and we will deal with it on that basis."

The TNC said it "expressed its gratitude and respect to the people of the US", which it called "the protector and promoter of democracy and freedom across the world".

In Istanbul, other foreign ministers said the entire contact group - including more than 30 Western and Arab countries - agreed to recognise the rebels.