The soldiers were captured as they escorted a junior diplomat through rebel-held territory in the east of the country.
The SAS`s intervention angered Libyan opposition figures who ordered the soldiers to be locked up on a military base.
Gadaffi`s opponents fear he could use any evidence of western military interference to rally patriotic support for his regime.
Quoting Libyan sources, the report said the SAS soldiers were taken by rebels to Benghazi, the largest city held by the opposition, and hauled before one of its most senior politicians.
The men, armed but in plain clothes, claimed they were there to check the opposition`s needs and offer help.
A British source, who confirmed that the men had been detained, said the junior diplomat they were protecting had intended to make contact with Gadaffi`s opponents.
His aim had been to prepare the way for a visit by a senior colleague and the early stages of establishing diplomatic relations with the rebels.
However, the Libyans reacted furiously, saying nobody had invited the British.
The senior politician told them to warn Prime Minister David Cameron`s government that it should recognise the opposition as Libya`s legitimate leaders before trying to open negotiations.
The British government said yesterday it hoped to send a "diplomatic taskforce" to Libya soon.
The Black Watch, 3rd Battalion of the Royal Regiment of Scotland, was on standby to aid humanitarian and evacuation efforts if required.