Well-wishers held traditional Muslim prayers and paid their respects to Megrahi's family in a subdued ceremony in Janzur, a suburb just west of the capital.
"His pain is over now – he is with God," said Mohammed al-Megrahi, insisting that his brother paid the price for a crime he did not commit.
"There never was exact proof," he said.
As the body was lowered into the grave, one distraught relative shouted: "He is innocent, he is innocent."
Megrahi was found guilty of blowing up Pan Am Flight 103 over the Scottish town of Lockerbie in 1988, killing all 259 people on board and another 11 people on the ground.
He died on Sunday, almost three years after the Scottish government freed him on compassionate grounds following his diagnosis with prostate cancer.
Megrahi's death has revived the debate on whether his conviction was flawed and prompted sharply contrasting reactions in Britain and the United States.
He had always maintained his innocence, arguing that US agencies "led the way" in securing his conviction.
His brother Abdelhakim defended him on Sunday, saying he was the "scapegoat" of the regime of Muammar Gaddafi, toppled in a popular uprising last year.
"He has died and has left us with the feeling of injustice," he told AFP. "Everyone knows that the Gaddafi regime blamed its mistakes on others."
The brother said the family would co-operate fully with any reopened investigation into the Lockerbie killings.
"We are convinced of Abdelbaset's innocence. Yes, we want the truth. It's in our interest," Abdelhakim said.
The US government, which was outraged by Scotland's decision to free the former Libyan airline security chief, said his death concluded "an unfortunate chapter."
"We will continue working with our new partners in Libya toward a full accounting of (Muammar) Gaddafi's horrific acts," said US National Security Council spokesman Tommy Vietor.
Libya's interim government pledged its full co-operation with any further inquiries into the Lockerbie bombing, which some, particularly in Britain, have blamed on Iran and its Palestinian allies rather than Gaddafi.
"In Libya, it is in our interest to close this case and bring out the truth," said Transitional National Council spokesman Mohammed Harizi. "We want to expose the crimes of Gaddafi which did so much harm to the Libyan people."
Britain's Independent newspaper demanded a public inquiry but its calls were rejected by Prime Minister David Cameron who again criticised Megrahi's release by the Scottish authorities, who have devolved powers in judicial affairs.
"Megrahi's death is no reason to stop trying to get to the truth," said the newspaper's editorial.
Cameron insisted: "There was a proper process, a proper court proceeding and all the rest of it. We have to give people the chance to mourn those that were lost."
The fact that Megrahi survived much longer than the doctors had estimated provoked indignation in Britain and the United States.
The convict had been greeted as a hero on his return to Gaddafi's Libya, after having served eight years of a minimum 27-year sentence for his role in the Lockerbie bombing.
Several relatives of US citizens killed in the Lockerbie bombing said they were pleased that Megrahi had died.
"He deserved to die," said Susan Cohen, whose daughter Theodora was one of the victims.
"He was a mass murderer. I feel no pity around him. He got to die with his family around him. My daughter, at age 20, died a brutal, horrible death," she told CNN.
But the British father of one of the victims, who has long believed Megrahi was innocent, said it was a sad day.
"It is a sad time, I think. I have been satisfied for some years that this man was nothing to do with the murder of my daughter," Jim Swire, whose daughter Flora was killed in the attack, told the BBC,
"I think Scotland has a big question to answer as to why his verdict hasn't long since been reviewed."
In December, Megrahi told several British newspapers in what was billed as a "final interview" that a book being written by investigative journalist John Ashton would clear his name.
"I am an innocent man," he said.
"I am about to die and I ask now to be left in peace with my family."
Source: AFP
Abdelbaset al-Megrahi has been buried in the town of , west of the Libyan capital Tripoli.  He was the only individual convicted in association with the Lockerbie bombing of 1988.  He died at his residence Sunday, aged 60.

The bombing of Pan Am Flight 103 from London to New York resulted in 270 fatalities, including all 259 of the airplane's occupants and eleven individuals on the ground. 189 of those who died in the incident were US citizens. The death toll for this terrorist incident is larger than that for any other which has occurred in the United Kingdom thus far.

Abdelbaset al-Megrahi was placed on trial in May 2000 in the Netherlands alongside . While Fhimah was found not guilty on all charges placed against him, al-Megrahi was found guilty of his and sentenced to at least 27 years imprisonment. Having been initially placed in , al-Megrahi was transferred to  in 2005.

In 2002, an appeal against his conviction was unsuccessful. Five years later, senior judges in Scotland were to review his case, but he dropped the appeal. Due to suffering from prostate cancer, he was granted a  from Scottish prison two days later.

Current UK  David Cameron commented on his belief that al-Megrahi "should never have been released from prison" and said his death was an occasion "to remember the 270 people who lost their lives in what was an appalling terrorist act". According to Alex Salmond, , the investigation into the Lockerbie bombing is ongoing. Salmond also called for remembrance of those killed.  Prosecutors, he said, had always thought there were others besides al-Megrahi involved in the attack.

US citizen Susan Cohen, the mother of one of those killed in the Lockerbie bombing, thought of al-Megrahi as "a mass murderer" who "deserved to die", adding to CNN: "I feel no pity around him. He got to die with his family around him. My daughter Theodora, at age 20, died a brutal, horrible death". However, UK citizen Jim Swire, father of another victim of the bombing, believes al-Megrahi was not guilty. He described al-Megrahi's death as "a sad time", telling the BBC he was "satisfied for some years that this man was nothing to do with the murder of my daughter".

Abdelbaset al-Megrahi has consistently denied responsibility for the attack. In his final recorded interview in December 2011, he insisted he was "an innocent man" who was "about to die and I ask now to be left in peace with my family." His brother Mohammed al-Megrahi claimed "there never was exact proof" and said al-Megrahi's "pain is over now – he is with God".