Russia has agreed to cancel $4.5bn (£2.3bn) of Libyan debt in exchange for major contracts for Russian firms.
The announcement came during a visit to Tripoli on Thursday by the Russian President, Vladimir Putin.
The two countries signed deals on energy co-operation, military assistance and construction of a 500km (310-mile) railway line in Libya.
Libya was a big importer of Soviet weaponry during the Cold War, when it accumulated large debts.
Russia's state gas monopoly Gazprom plans large-scale exploration and production projects with Libya's national energy company. They will include liquefied natural gas installations and gas-fired electricity plants in Libya.
Russia will provide the technology for Libya to build a major rail link between Sirte and Benghazi. Construction is expected to take four years.