The two Swiss businessmen held in Libya for more than a year were arrested by Libyan authorities one week ago, Switzerland's foreign ministry confirmed on Friday.
They were taken into custody on September 18 after they were summoned for a "medical examination", the Libyan foreign ministry said in a diplomatic note.
The men had been staying within the Swiss embassy and, according to the French-language Le Temps newspaper, were summoned by the Libyan authorities for a medical check-up which they said would lead to their imminent release.
The Swiss foreign ministry called the arrests "unacceptable".
Swiss authorities also confirmed that they knew about the arrests prior to a meeting on Wednesday between President Hans-Rudolf Merz and Libyan leader Moammar Gaddaf on the sidelines a United Nations meeting in New York.
"He [Merz] knew it," a finance ministry spokesman told swissinfo.ch without commenting further. Merz also holds the finance portfolio.
Dealing with the affair
After the meeting, Merz told Swiss television that Gaddafi had promised that "he would personally deal with the affair".
But Libya said on Friday morning that officers had moved the two men to a location outside Tripoli, the capital. The oil-producing North African state was reportedly concerned that the Swiss would use military force to free the men.
Didier Burkhalter, Switzerland's newly elected cabinet minister, had in fact mentioned the possibility of liberating the men by force in May, when he was a senator.
"My goal was above all to make it understood that [Swiss special forces] have the capacity and skills needed to do it," Burkhalter, an expert in security issues, later told Le Temps newspaper.
Albert Stahel of the Institute for Strategic Studies in canton Zurich disagrees. He told the Tages-Anzeiger newspaper on Friday that Switzerland might have the elite troops but not the precise intelligence reports needed to carry out such operations.
"I made it very clear"
Merz said releasing the two men was a precondition to normalising relations between the two countries, which have been tense since one of Gaddafi's sons, Hannibal, was arrested in 2008 in Geneva on charges of abusing his servants while at a luxury hotel.
The charges were eventually dropped after the servants withdrew their complaint, but Libya restricted trade, withdrew assets held in Switzerland, and denied the businessmen exit visas.
In August, Merz flew to Libya and apologised for the Geneva arrest. He did not meet with Gaddafi until Wednesday in New York. The Swiss president called the 40-minute talks "relaxed and calm".
"I made it very clear that this contract that we signed should be implemented by our Libyan partners and that the two Swiss must be returned," Merz said later.
After Wednesday's meeting, it appeared the row was somewhat closer to being resolved. A civil case brought by Libya against the Geneva authorities was suspended at the request of all parties and a court hearing scheduled for Thursday in Geneva was also cancelled.
It was good news for Merz, who after travelling to Tripoli and apologising to Libyan Prime Minister al-Baghdadi al-Mahmoudi, returned with nothing except a promise that the men would be returned "soon".
Libya said this was a misunderstanding.
Merz's trip followed a May visit by Foreign Minister Micheline Calmy-Rey, who said "significant progress" had been made.
The foreign ministry did not release the news of the businessmen's arrest until Friday afternoon. It said it would quickly dispatch a delegation to Libya in an attempt to secure their freedom.
In a previous diplomatic spat in 1997 Tripoli banned Swiss citizens from entering Libya to protest against Switzerland's refusal to grant a student visa to a son of Gaddafi.
In return the Swiss authorities tightened entry regulations for Libyan citizens. The conflict was solved in April 1998.
Political contacts between the two countries returned to normal after the UN-imposed sanctions were lifted in 2003.
Libya is one of Switzerland's five key export markets on the African continent and was its main supplier of crude oil before economic relations were interrupted.
Libya provided about 50% of Swiss crude oil imports and had assets worthSFr6.5 billion in Swiss banks in 2007.
Swiss exports in 2007, mainly in the watchmaking and machinery as well as the pharmaceutical industries, rose 16.3% to SFr278.6 million.