Libyan state oil company NOC lifted force majeure at the El Sharara oilfield, closed since December when state guards and tribesmen seized it.
An oil engineer said oil production at the 315,000 barrels a day field was being restarted with a return to regular output expected in days.
The resumption brings to an end a stalemate between NOC and eastern military forces, the Libyan National Army (LNA), led by Khalifa Haftar, which took control of the field three weeks ago as part of a southern offensive.
The LNA called on NOC to reopen the field but chairman Mustafa Sanalla demanded all armed groups leave the site.
NOC said Sharara’s’ operating company Akakus received written assurance from the LNA all individuals subject to Public Prosecutor arrest warrants were removed from the field and will not be re-admitted to the site.
“Plans are in place to repair the 20,000 barrels per day lost production capacity destroyed by looting and vandalism during the blockade,” NOC said in a statement.
The closure of the field caused a production loss of $1.8 billion (£1.3 billion), it said.
Reopening the field strengthens the position of Haftar and the LNA which controls eastern oilfields and ports. El Sharara was formerly under control of groups allied to the UN-backed administration in Tripoli.
The LNA has taken of much of the south in past two weeks, expanding from its eastern power base.
Restarting operations at El Sharara underlines the role of the United Arab Emirates in Libya. Last week, the UAE hosted a meeting between Sanalla and Tripoli Prime Minister Fayez al-Serraj to persuade NOC to reopen the field, according to diplomats.
The UAE is Haftar’s main backer.