WASHINGTON -- The United States will restore full diplomatic relations with Libya and remove the North African country from the list of state sponsors of terrorism, the State Department announced Monday.

The removal from the terrorism list is expected to take place after a 45-day waiting period.

"We are taking these actions in recognition of Libya's continued commitment to its renunciation of terrorism and the excellent cooperation Libya has provided to the United States and other members of the international community in response to common global threats faced by the civilized world since September 11, 2001," said a statement from Secretary of State Condoleezza Rice.

Once full diplomatic ties are established, an ambassador to Libya will replace the current charges d'affaires, and an embassy will be established in Tripoli.

"Today's announcements are tangible results that flow from the historic decisions taken by Libya's leadership in 2003 to renounce terrorism and to abandon its weapons of mass destruction programs," Rice said.

The move is likely to have a major impact on oil markets, and could even bring down fuel prices, CNN National Security Correspondent David Ensor reported.

After decades of thumbing his nose at the West, which made him an international pariah, Libyan leader Moammar Gadhafi made an abrupt about-face after the fall of Iraqi dictator Saddam Hussein in 2003, renouncing support for terrorism and agreeing to give up Libya's missiles and weapons of mass destruction.

In early 2004, Libya handed over its nuclear components and documents related to the country's weapons of mass destruction program, which were taken to a U.S. facility in Tennessee.

Later that year, the United States ended a 18-year trade embargo against Libya and lifted a ban on travel there by Americans.

After meeting with Rice last September, Libyan Foreign Minister Abd al-Rahman Shalgam pledged that his country would "cooperate in good faith" in providing additional information about the 1988 bombing of Pam Am Flight 103 over Scotland, which killed 270 people.

A Libyan intelligence agent was convicted of planting the bomb, and Gadhafi's government agreed to pay $2.7 billion to the victims' families.