"We agreed to reactivate the 2008 Italian-Libyan friendship treaty," said Libya's foreign minister Mohamad Siala in a joint press conference in Tripoli with Italian counterpart Enzo Moavero Milanesi.
Milanesi hailed the agreement reached during his first visit to Tripoli as "significant and promising".
The original treaty was signed by former Libyan dictator Moumar Gadhafi and Italy's then prime minister Silvio Berlusconi, as they sought to turn a page on 40 years of stormy relations between the North African country and its former coloniser.
But the deal was suspended in February 2011, after the start of the uprising that saw Gadhafi forced from power and killed.
The original treaty envisaged unlocking US$5 billion (S$6.8 billion) of Italian investment in Libya as compensation for colonisation by Rome.
In exchange, Libya would work to stop illegal migrants embarking from its shores - and receive those sent back to the north African country, a clause lambasted by human rights activists.
The two ministers did not say if the text of the reactivated treaty had been amended.
The agreement means "all the conditions are in place to work hand in hand to support stabilisation... (of) Libya's security and unity", Milanesi said.
Libya "shares with the European Union the responsibility and the duty to deal with migrants", he added.
"Co-operation between Libya, Italy and the EU is essential to resolve the immigration question and avoid human tragedies", said Milanesi.
During Kadhafi's rule, thousands of migrants crossed Libya's nearly 5,000km of land borders in attempts to reach the Mediterranean and cross to Europe.
The flow of migrants through Libya surged after Gadhafi was toppled and killed in 2011, with smugglers exploiting the country's chaos to send tens of thousands of people each year across a 300km stretch of the Mediterranean to Italian territory.