Mr. Obama said his administration conveyed its objections to the Scots, who announced that Abdel Baset al-Megrahi was being released because he is terminally ill and should be permitted to die in his home country.
"We have been in contact with the Scottish government indicating that we objected to this," Mr. Obama said in an interview from the White House with Philadelphia-based radio talk show host Michael Smerconish.
"And we thought it was a mistake," Mr. Obama added. "We're now in contact with the Libyan government and want to make sure that if in fact this transfer has taken place that he's not welcomed back in some way but instead should be under house arrest."
Read more about Obama's interview with Smerconish
State Department spokesman P.J. Crowley elaborated on the point about al-Megrahi's reception in Libya.
"We hope that the return will be low-key and he will not be celebrated as a hero, which he is not," Crowley said. He said Scottish authorities had placed "some conditions" on al-Megrahi's return to Libya but Crowley did not elaborate.
"We certainly believe that as a convicted criminal, he is not entitled to a hero's welcome," the spokesman added.
Scottish Justice Secretary Kenny MacAskill said the order to release al-Megrahi grew out of the convicted bomber's deteriorating health. He has prostate cancer and is not expected to live much longer.
Secretary of State Hillary Rodham Clinton issued a statement saying by the Scottish authorities' decision. She noted that the Dec. 21, 1988 bombing over Lockerbie killed 270 people, including 189 Americans. Al-Megrahi had served eight years of a life sentence in Scotland.
"We have continued to communicate our long-standing position to U.K. government officials and Scottish authorities that al-Megrahi should serve out the entirety of his sentence in Scotland," Clinton said.
Crowley told reporters that the administration will closely watch how al-Megrahi is received in Libya and that his reception may affect U.S.-Libyan relations.
Sen. Frank R. Lautenberg, D-N.J., issued a statement calling the Libyan's release "unconscionable."
White House press secretary Robert Gibbs said the United States had repeatedly asked Scotland to keep al-Megrahi in custody. Gibbs said: "On this day, we extend our deepest sympathies to the families who live every day with the loss of their loved ones."
Attorney General Eric Holder released a statement saying he was "extremely disappointed" with the release.
"The interests of justice have not been served by this decision," he said. "There is simply no justification for releasing this convicted terrorist whose actions took the lives of 270 individuals, including 189 Americans."
Holder said al-Megrahi "did not show and has not shown compassion for innocent human life, and as we communicated to the Scottish authorities and the U.K. government, it continues to be our position that he should have been required to serve the entire sentence handed down for his crimes."
According to a White House official, Clinton and Holder were among those to directly convey to the U.K. and to Scottish authorities the view al-Megrahi should serve out his term in Scotland, reports CBS News White House correspondent Peter Maer.
But, as CBS News legal analyst Andrew Cohen notes, al Megrahi "was in a Scottish prison subject to Scottish law and that means that Scotland gets to make the final call. Remember, many Europeans don't care for the way the U.S. dispenses justice, especially when it comes to capital cases. So this is a situation where the tables are turned."