Conservative co-chairman Baroness Warsi is facing calls for an investigation into her expenses over allegations that she claimed for overnight accommodation when staying at a friend's house rent-free.
Lady Warsi insists that she made an "appropriate payment" for the nights she stayed at a property occupied by Tory official Naweed Khan.
Mr Khan today backed her claim, releasing a statement saying she made a payment each time she stayed at the property.
However, Dr Wafik Moustafa, the owner of the property in Acton, West London, denies that he received any income from either Lady Warsi or Mr Khan.
The Tory peer, now a Cabinet Office minister, was at the time claiming Lords subsistence of £165.50 a night.
'All seems very murky'
Labour MP John Mann said he would be asking the Lords commissioner for standards to investigate.
"If you are paying no rent where you are staying, you can't possibly be claiming subsistence for staying there," he said.
"It all seems very murky. We need a full investigation into the matter."
In a further embarrassment for Lady Warsi, the most senior Muslim politician in Britain, she has admitted failing to declare rental income on a London flat in the Lords register of interests.
She said the omission was due to an "oversight", adding that she had reported the letting of her Wembley flat in the Register of Ministers' Interests.
The arrangement had also been declared to the Cabinet Office and HM Revenue and Customs, she said.
The peer bought the property in 2007 but moved closer to Parliament when she became a minister in 2010, after which she began letting the Wembley flat.
Peers are required to declare sources of income of more than £500, although the annual rent on a London flat is likely to be many times greater than that.
In a statement last night, Lady Warsi said that she contracted to buy the flat in September 2007, but it was not due to be ready until the following year.
In the interim she stayed predominantly at two hotels but also, for "occasional nights", at an Acton property occupied by Tory party adviser Mr Khan.
"The completion date for the property was slightly delayed, and not having made advanced bookings for these hotels, there was a period of around six weeks when I spent occasional nights at a flat in Acton, which was occupied by Naweed Khan, at the time a member of Conservative Campaign HQ staff," she said.
"For the nights that I stayed as a guest of Naweed Khan, I made an appropriate financial payment equivalent to what I was paying at the time in hotel costs.
"In March 2008, I moved into the flat in Wembley. As I was living in the property, it was therefore not registrable on the Register of Lords' Interests. Upon becoming a minister, however, my ownership of this property was fully disclosed to the Cabinet Office.
"In June 2010, upon security advice, I moved to another address closer to the House of Lords and some months later began, with the prior approval of the Cabinet Office and the Leader of the House of Lords, to let out the Wembley property.
"Due to an oversight, for which I take full responsibility, the flat was not included on the Register of Lords' Interests when its value and the rent received came to exceed the thresholds for disclosure," she said.
"When the discrepancy became apparent this week, I immediately informed the Registrar of Lords' Interests of its omission.
"I repeat, at all times my ownership of the flat and the fact that it was being let out was fully disclosed to Cabinet Office officials and HM Revenue and Customs, and was appropriately reported on the register of ministers' interests held by the Government."
The Acton flat is understood to be owned by Dr Wafik Moustafa, a Conservative donor and former electoral candidate who is now engaged in a dispute with the party and Lady Warsi.Mr Khan said that he stayed at the house belonging to Dr Moustafa between July 2007 and November 2008 while working in central London.
"In the early part of 2008, for a short period, Baroness Warsi stayed with me," he said in the statement.
"I confirm she made a financial payment on each occasion, which compensated for the inconvenience caused and additional costs incurred by me as a result of her being there."