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EDINBURGH, Scotland - The only man found guilty in the 1988 airplane bombing over Lockerbie, Scotland, is dropping his appeal, his lawyers said Friday -- removing an obstacle to his possible transfer to Libya but disappointing activists who believe he is innocent.

Abdel Baset Ali al-Megrahi's lawyer, Tony Kelly, said his client, who is terminally ill with prostate cancer, filed papers to drop his appeal because his health had deteriorated.

"His condition has taken a significant turn for the worse in recent weeks," the lawyer said.

British broadcasters reported this week, without citing sources, that al-Megrahi had been given just months to live and would be released early from a Scottish prison on compassionate grounds.

The former Libyan secret service agent was convicted for the December 1988 bombing of Pan Am 103, which killed 270 people -- most of them Americans. It was the deadliest terrorist attack ever committed in Britain.

The United States has firmly objected to reports that al-Megrahi might be released.

State Department spokesman P.J. Crowley told reporters Friday that Secretary of State Hillary Rodham Clinton had called Scottish Justice Minister Kenny MacAskill in the past day and "expressed strongly" the U.S. view that "al-Megrahi should serve out the entirety of his sentence in Scotland for his part in the bombing of the Pan Am 103 flight."

Crowley said the U.S. attorney general, Eric Holder, also had called MacAskill in the past few days.

"Our interest is justice, and our interest is the commitment that we made to the families" of the victims, Crowley said.

"He was brought to trial. He had a fair trial. He was convicted. He's serving his time. And we think he should stay in jail," he added.

The Scottish government said it has yet to decide on his request for early release. They are also considering allowing al-Megrahi to serve the rest of his sentence in Libya.

A Scottish government spokesman confirmed MacAskill had spoken to Clinton and told her "that he was still considering matters."

Al-Megrahi was arrested in 1991 and held under house arrest in Libya until 1998, when he was handed over to Britain. He was convicted in 2001 by a special Scottish court set held at Kamp van Zeist in the Netherlands. The appeal he is dropping was his second.

Al-Megrahi was told earlier this year he must drop the appeal before he could be considered for a prison transfer to Libya. No transfer can occur while legal proceedings are ongoing.

He would not have to drop the appeal, however, to be freed on compassionate grounds.

The reports have angered relatives of some Lockerbie victims. Susan Cohen of Cape May Court House, New Jersey, whose 20-year-old daughter, Theodora, died in the attack, said the possibility that al-Megrahi could be freed was a nightmare.

"This is total, pure, ugly appeasement of a terrorist dictator and a monster," Cohen said. She argued that Libyan leader Moammar Gadhafi would feel vindicated if the convicted bomber were allowed to return to Libya.

Other relatives remain convinced that al-Megrahi was not behind the bombing. His lawyers have said the attack was actually the result of an Iranian-financed Palestinian plot.

Jim Swire, whose daughter Flora died on Flight 103, said Thursday that his greatest fear was that the appeal would be dropped and the truth would never be known.

Robert Black, a lawyer who helped set up the special court, said a deal may have been struck to prevent new evidence from being heard at the appeal.

"I think there has been strong pressure from the Justice Department and the Crown Office (prosecutors) to get this appeal abandoned," he said. "Now legitimate concerns about this conviction will not be heard in court. They did want the appeal to be completed."

Christine Grahame, a member of the Scottish Parliament who visited al-Megrahi in prison, said there were "a number of vested interests who do not want to reveal the truth behind Lockerbie."

"He always told me his first priority was to prove his innocence, so I am surprised he has dropped the appeal and that's why I believe he has been leaned on," she told the BBC.

The Libyan government applied in May to have al-Megrahi repatriated under a prison transfer agreement it has with Britain.

Separately, al-Megrahi applied in July for release on compassionate grounds, claiming he is terminally ill with prostate cancer.

A judge is expected Tuesday to review al-Megrahi's request to drop the appeal. Al-Megrahi will not attend the hearing.

MacAskill is due to decide the same day whether al-Megrahi should remain in a Scottish jail, be freed on compassionate grounds or be transferred to Libyan custody.

A spokeswoman for the Scottish government said the timing was a coincidence.

Al-Megrahi's trial and conviction led to a major shift in Libya's relationship with the West.

Gadhafi engineered a rapprochement with his former critics following the Sept. 11, 2001, terrorist attacks. He renounced terrorism, dismantled Libya's secret nuclear program, accepted his government's responsibility for the Lockerbie bombing and paid compensation to the victims' families.