Fitch Ratings on Monday downgraded Libya's credit rating by one notch to BBB in the midst of escalating violence in the oil-rich North African nation.

The rating agency said the downgrade reflects the eruption of political risk evidenced by the increasing momentum of the popular uprising aimed at ending Muammar Gadhafi's 42-year rule.

Fitch said lack of a political resolution to the conflict and mounting violence would likely result in a further downgrade. This would especially be the case if disruption extended to Libya's oil production, it said.

With no formal constitution in place, it has never been made clear how and to whom the Libyan leader - who holds no formal political office - would hand over power. This uncertainty is magnified by the present circumstances, Fitch said in a statement.

Political reforms and/or outright regime change is also unlikely to be smooth, given the absence of a mechanism to guide any transition. However, political reforms which successfully quelled unrest would help stabilise the rating, the agency said.

The agency said it placed the ratings on a negative watch, reflecting the wide range of possible political outcomes.

Violent anti-government clashes broke out last week and scores of people were reported killed in Libya, with pro-government militia targeting protesters in different part of the country.

Libya is the only Fitch-rated sovereign that has no government debt and has accumulated sovereign assets of up to $139 billion at end-2009 from its oil production, the agency said.

Libya is the sixth-largest per capita oil producer in the world and has the largest proven crude oil reserves in Africa.