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The Duke of York also was host to the son of the Tunisian dictator shortly before a popular uprising drove him from power.
The buildup of embarrassment has sparked calls that he be stripped of his role as special U.K. trade representative.
Buckingham Palace is in damage-control mode as it tries to keep the public's focus on the April 29 wedding of Prince William and Kate Middleton.
British officials have rallied to Prince Andrew's defense. The foreign secretary expressed his "confidence" in the prince Sunday, and a U.K. trade official voiced support for the prince to remain in the trade-representative position, saying he does a "very valuable job."
Prince Andrew has had trouble before: His much-publicized divorce from Sarah Ferguson and her subsequent missteps stand in stark contrast to the glow surrounding the upcoming nuptials.
Since becoming an unpaid special trade representative in 2001, Prince Andrew has drawn criticism for reportedly taking lavish trips in that role.
The latest revelations have centered on Prince Andrew's friendship with convicted pedophile Jeffrey Epstein and claims that the prince also had close ties to Seif al-Islam Kaddafi, one of the Libyan leader's sons.
Photos recently published in the British media show Prince Andrew strolling in a park with Epstein, a New York billionaire jailed for soliciting underage prostitutes in Florida. Most recently, a photograph emerged showing Andrew with his arm around the waist of the teenage prostitute at the center of that case.
Although there has been no suggestion of any wrongdoing by the prince, the sum of events has prompted questions whether he is a suitable representative for U.K. interests abroad.
Last week, British lawmaker Chris Bryant claimed that Prince Andrew had close links to Seif Kaddafi and called for Andrew to be fired.
Buckingham Palace Sunday rejected Mr. Bryant's claims, saying Prince Andrew's interactions with the Kaddafi regime -- and Tunisia's ousted dictatorship as well -- fell within the mandate of his job as special trade representative.51.50632 -0.127144
Revelation fuels calls he be stripped of trade post