The intervention came at the culmination of a firefight that ended Gaddafi's control of the Zawiyah facility, which lies just 30 miles west of Tripoli.
Pro-Gaddafi forces had taken to the boat after fighting a desperate rearguard battle for the refinery, the regime's last source of fuel for its besieged capital.
A British ministry of defence spokesman said they had commandeered a tug in an effort to regroup after a Nato strike destroyed their armed vehicles. "Although a challenging target, small and under way at sea, a direct hit was scored with a laser-guided Paveway bomb which sank the vessel," Major Gen Nick Pope said.
Rebels were relieved and proud that the facility was still intact and ready to resume production in days. They said two soldiers were killed and a handful captured during the assault.
Rebel fighters also declared that they had taken full control of Ghariyan, a garrison town south of Tripoli to complete the encirclement of the capital.
Pro-Gaddafi forces continued to hold out in the centre and east of Zawiyah. (© Daily Telegraph, London)