Switzerland and Libya reached a new low point in their relations Friday as the Swiss government announced that two of its citizens are being held at an undisclosed location in the Arab country.

The information came two days after Swiss President Hans-Rudolf Merz met with Libyan leader Moammar Gadhafi in New York in an unsuccessful effort to defuse tensions between the two countries, which were badly damaged by last year's arrest in Switzerland of the Libyan leader's son Hannibal.

The treatment of the two Swiss citizens in Libya has subjected Merz to calls for him to resign.

For more than a year, Switzerland has known that two of its businessmen have been prevented from leaving Libya. But they are now being held "for their own security" because there is a "threat that Switzerland might free them militarily," the Swiss Foreign Ministry quoted a Libyan letter as saying.

The plight of the businessmen has enraged Switzerland, which has publicly apologized for the arrest of Hannibal Gadhafi and subjected itself to possible compensation claims. The dispute also comes at a time when Mommar Gadhafi has angered many in the West by giving a hero's return to convicted Lockerbie bomber Abdel Baset al-Megrahi, and by thumbing his nose at the international community by declaring at the U.N. in New York that the Security Council is a terror organization.

The Swiss Foreign Ministry said Friday that it was informed two days ago — the same day Merz met with Gadhafi in New York — that Libya had taken businessmen Max Goeldi and Rachid Hamdani into custody. The pair has been prevented from returning home since July 2008 in apparent retaliation for the arrest of Hannibal Gadhafi and his wife for allegedly beating up two servants in a luxury hotel in Geneva.

"On Sept. 18, both Swiss were called by Libyan authorities for a medical examination and afterward were detained," said ministry spokesman Adrian Sollberger.

"They are in a safe place, we don't know where," Foreign Minister Micheline Calmy-Rey told national broadcaster SF. "We're trying to get them out through diplomatic means."

The ongoing saga has become an embarrassment for the government and especially Merz, who signed a deal with Libya last month aimed at normalizing relations and promised to return the two employees of engineering company ABB Ltd. by Sept. 1 or "bear the consequences."

The accord commissions an independent panel to examine the July 15, 2008, arrest of Hannibal Gadhafi and possibly recommend compensation. It does not explicitly demand that the Libyans free the two Swiss, and Merz has faced growing calls to resign in the media and across the political spectrum for letting himself be outmaneuvered by Tripoli.

Merz, in New York for the U.N. General Assembly, said Thursday he has no intention of resigning. He met Wednesday evening with Gadhafi for about 40 minutes.

Hannibal Gadhafi was held by Geneva authorities for two days after his arrest before being allowed to return home. The complaint was eventually dropped after the two servants received compensation from an undisclosed source, but Tripoli cut off supplies of crude oil to a Libyan-owned refinery in Switzerland and barred Swiss ships from its ports.

The oil-rich North African nation supplies more than half of Switzerland's crude imports, which totaled some 2.5 million tons in 2007, according to the latest available Swiss government figures.

Libya also recalled some of its diplomats from Switzerland, suspended visas for Swiss citizens, withdrew funds from Swiss banks, and reduced flights to the Alpine country in retaliation.

Libyan officials have demanded wide-ranging concessions from Switzerland in return for the release of Goeldi and Hamdani. During his visit to Tripoli, Merz apologized for the arrest, saying it was the only way to secure the release of the two Swiss. The apology enraged many in Switzerland, though it was welcomed by Swiss companies eager to do business in Libya.