Libya's National Unity Government Prime Minister Abdelhamid Dbeibeh suspended his Foreign Minister, Najla Mangoush, and ordered an investigation after reports that she met her Israeli counterpart, Eli Cohen, last week in Italy.
The decision came after a statement from the Israeli Foreign Ministry earlier on Sunday claiming the two ministers met in Italy, despite the fact that the two countries do not have diplomatic relations.
The meeting between Mr Cohen and Ms Mangoush was reportedly organised by the Italian Minister of Foreign Affairs, Antonio Tajani.
"I spoke with the Foreign Minister about the great potential for the two countries from their relations, as well as the importance of preserving the heritage of Libyan Jews, which includes renovating synagogues and Jewish cemeteries in the country," Mr Cohen said in a statement published by his ministry on Sunday.
The statement said the ministers discussed historic ties between the countries, and "the possibility of co-operation, and Israeli aid in humanitarian issues, agriculture, water management".
Before Ms Mangoush's suspension, the Libyan Foreign Ministry said in a statement that its minister refused any meetings with Israeli officials.
It said that "what happened in Rome is a mere informal and casual encounter", while Ms Mangoush met the Italian Foreign Minister, Antonio Tagani.
No formal diplomatic agreement has been made between Libya and Israel throughout the history of both countries.
Libya has a rich Jewish heritage, like other north African countries. But during the rule of ousted and killed Libyan president Muammar Qaddafi, an estimated 38,000 Jews were expelled and most synagogues were destroyed and later turned into mosques.
Qaddafi was a known antagonist of Israel and a champion for Palestinians, including armed militant groups.
After his removal and killing in 2011, Libya was plunged into a civil war that has left the country divided between rival governments in Benghazi in the east and Tripoli in the west.
Ms Mangoush belongs to Libya's Tripoli government, which is led by Mr Dbeibeh, known for his closeness with Italy.
The reported meeting between the two ministers and what it entails could, however, bring changes to domestic politics in Libya and a geopolitical shift in North Africa.
Any potential rapprochement between Libya and Israel could bring a new crisis between the eastern and western governments, and a possible backlash from the Libyan population inside and outside the country.
On Sunday evening, protests erupted in the town of Zawya, 47km from Tripoli, in rejection of the news.
Libya might also face a crisis with its neighbouring countries of Tunisia and Algeria, whose foreign policies reject any kind of normalisation or formal relations with Israel.
Any Libyan normalisation with Israel might also divide the North African region even further, through its economic and political bloc, the Arab Maghreb Union.