People rushed to get cash from their accounts after the Libyan banks reopened on Tuesday.
The cash, printed in the UK, is the first tranche of £950m that will be handed to Libya's Central Bank.
A Whitehall official said the money should be available for cash machines and banks in Libya very quickly.
Meanwhile, the BBC has learned that David Cameron set up a unit to block fuel supplies to Col Gaddafi's forces.
The secret "Libya oil cell" also ensured that petrol and diesel continued to get through to the rebels in the east, BBC deputy political editor James Landale said.
The Whitehall-based unit was made up of a handful of civil servants, ministers and military figures.
"If you didn't have the fuel, you couldn't win the war"
It played a crucial role in starving the regime's war effort of fuel while making sure that the rebels could continue taking the fight to Gaddafi, Whitehall officials told our correspondent.
Our correspondent said the unit was the idea of International Development Minister Alan Duncan. He was unavailable for comment on Wednesday evening.
The former oil trader convinced the Mr Cameron in April that part of the solution to the conflict lay in oil, our correspondent said.
One Whitehall source said: "If you didn't have the fuel, you couldn't win the war. So our aim was to starve the west of fuel and make sure the rebels could keep going.
"Gaddafi had lots of crude but he couldn't refine it. So he had to rely on imported fuel. And we turned off that tap."
The unit was established in the Foreign Office and was initially headed by a senior admiral, and later by a senior government official.
The operation gathered intelligence about oil and fuel movements, and information was passed to the government and Nato.
The release of the Libyan currency came following a decision by the United Nations sanctions committee in New York.
The official said the cash delivery, worth $1.55bn, should make it possible to pay many public sector workers, including nurses, doctors, teachers and police officers, over the Eid holiday.
Many of those dependent on government salaries have not been paid for a number of months.
The money will also be used to provide aid for refugees displaced by the conflict and to pay for medicine and food supplies.
The funds were frozen in February when the uprising in Libya started.
The move comes on the eve of a major international conference on the future of Libya to be held in Paris on Thursday, chaired jointly by French President Nicolas Sarkozy and the UK prime minister.
UK Foreign Secretary William Hague said he was "delighted" the delivery to the Central Bank in Benghazi had been completed.
"Returning money to the Libyan people is part of our commitment to help the National Transitional Council rebuild Libya and help create a country where the legitimate needs and aspirations of the Libyan people can be met," said Mr Hague.
He added further deliveries of the remaining funds would be made shortly.
Germany has also asked for agreement to release about 1bn euros (£900m) in seized assets, while France wants to unfreeze about 5bn euros (£4.4bn) to help pay for humanitarian aid and keep essential services going in Libya.
Last week, the UN agreed to a US request to unblock $1.5bn (£1bn) in frozen Libyan assets.
In March, a ship carrying Libyan currency worth £100m was impounded.
The Home Office said the ship was intercepted by UK authorities after heading back to British waters following an aborted attempt to dock at Libya's capital, Tripoli.
The money, which was printed in north-east England, was held at Harwich, Essex.