The Conservative Party has suspended the whip from Sir Malcolm Rifkind and will convene a disciplinary committee to investigate his case, a party source has said.
Jack Straw said his involvement in a cash-for-access row was "not how I expected to spend my last weeks in Parliament".
The former Foreign Secretary, who will stand down as MP for Blackburn after the general election, reiterated that he had "done nothing wrong".
Straw was secretly filmed by the Daily Telegraph and Channel 4's Dispatches progamme, who have accused him of offering to use his position in return for cash.
Labour MP Tom Watson has described Sir Malcolm Rifkind's discussion potential work with a bogus Chinese company as "very odd", and claimed the rules should be changed so that such arrangements were outlawed.
The former foreign secretary - secretly filmed in the discussions by Channel 4's Dispatches - has denied any wrongdoing, and said all his work outside that of an MP is within the rules and publicly declared.
However, in a short blog post, Watson said that members of the Intelligence and Security Committee - of which Sir Malcolm is chair - should not be allowed to have "outside interests".
"To be frank, I can’t believe ISC members are allowed outside interests," he said. "They see more sensitive information than most government ministers."
He added: "Members of the committee should be subject to the same disclosure rules as government ministers. I hope the PM will put this right before Parliament rises for the election."
Sir Malcolm Rifkind has said any allegations of wrongdoing against him are "insulting", after he was filmed discussing a potential advisory role with undercover reporters posing as representatives of a fictitious company.
He said he would feel "angry" when watching the Channel 4 Dispatches programme tonight, particularly at the "suggestion that there is something improper" about considering such a position with a "company that says it is proposing major investment in the United Kingdom".
"Many, many people have served on such advisory boards from all walks of life - including parliament - for many, many years," the former foreign secretary said.
The chair of the Security and Intelligence Committee added that he had never offered access to any privileged information, stating that Channel 4 had already accepted this.
Jack Straw has said he is "mortified by the way I fell into this trap" after being filmed by investigative reporters posing as staff of a Chinese company, but insisted he had not acted improperly.
The former Labour home and foreign secretary told BBC Radio 4's Today programme he had been "absolutely scrupulous" in regards to the rules on outside interests and was discussing potential work after he retires as an MP.
Asked if he should have asked that the conversation be delayed until after his parliamentary role had ended, Straw admitted: "I should have done [...] it would have saved a fantastic amount of trouble."
He also said he believed that current rules dictating MPs' income outside of their parliamentary roles were "satisfactory", but accepted that others - including his own party leader Ed Miliband - disagreed.
After the Channel 4 Dispatches film showed Straw saying he had operated "under the radar", the Blackburn MP said he meant that he raised matters politely, rather than running a public or confrontational campaign.
Sir Malcom Rifkind has issued a denial of the "very serious" and "unfounded" allegations against him in an undercover television investigation, adding: "I am going to fight them with all my strength."
The former Foreign Secretary said he had been invited to be on an advisory board and had not been involved with any "negotiations" with the reporters from Channel 4's Dispatches - who had claimed to represent a Hong Kong-based communications agency.
He also claimed he had been "refused" the opportunity to make his case on camera by in which he was accused of being prepared to use his position and contacts for payment from a private company.
Sir Malcolm told BBC Radio 4's Today programme he would not offer his resignation as chairman of the Security and Intelligence Committee, unless the other members wished him to do so.
However, he apologised after being recorded saying he was self-employed and didn't get a salary, saying the statement was taken "out of context" and referred to his roles outside that of an MP.
Sir Malcolm Rifkind and Jack Straw have been secretly filmed by reporters working for the Daily Telegraph and Channel 4's Dispatches apparently offering to use their positions in exchange for cash. Both strongly deny any wrongdoing.
Sir Malcolm has referred himself to the Parliamentary Commissioner for Standards but said claims he was 'willing to act as an MP for hire' were untrue.
Mr Straw issued a statement insisting that nothing he said in the meetings was 'improper'.
Former Foreign Secretary Jack Straw has referred himself to the Parliamentary Commissioner for Standards after claims he was secretly filmed by the Daily Telegraph and Channel 4's Dispatches progamme offering to use his position in return for cash.
Mr Straw, who is standing down at the general election, said in a statement that he made clear from the outset that any discussions he entered into related to what he might do once he left the Commons and not while he was a serving MP.
He said that despite his requests, Dispatches and the Telegraph had not supplied him with a transcript of his conversations with the undercover reporters so he could not identify the context of any of his remarks.
I now face the horrible situation in which what I said is being used to suggest wrongdoing when there was none. But I've spent long enough in politics to know how some of the remarks I made in what I had thought was a private conversation will now be used.
In view of this, and in order to clear my name, I have written to the Parliamentary Commissioner for Standards to make a self-referral to her. I have also written to Rosie Winterton, opposition chief whip, to say that pending consideration of my referral by the Commissioner, I shall voluntarily withdraw from the parliamentary Labour Party.
I am mortified that I fell into this trap, despite my best efforts to avoid this, and my previous public criticism of colleagues of all parties who have done so in the past. Of course I am kicking myself.
However, I am clear that there was nothing that I said in the meetings which was improper. I am proud of my record as member for Blackburn and a parliamentarian over 36 years.
A Downing Street source said Sir Malcolm Rifkind "has referred himself to the Parliamentary Commissioner for Standards" over claims that he was secretly filmed offering to use his position of influence in exchange for cash. He has strongly denied any wrongdoing.
Sir Malcolm, who chairs the parliamentary committee which oversees Britain's intelligence agencies, was said to have claimed that he could arrange "useful access" to every British ambassador in the world because of his status.
Sir Malcolm was also alleged to have suggested that he would be willing to write to ministers on behalf of the company without declaring the name of the firm.
During the meetings, Sir Malcolm is said to have described himself as being "self-employed", saying "nobody pays me a salary". He is said to have discussed his usual fee for his services as being "somewhere in the region of £5,000 to £8,000" for a half a day's work.
In response to the allegation Sir Malcolm told the programme: "I have never undertaken nor would undertake any lobbying as an MP on behalf of any private organisation for which I was receiving remuneration. You suggest that I showed myself as 'willing to act as an MP for hire'. That is untrue.
Former Foreign Secretary Jack Straw has suspended himself from the Labour party after allegations that he and Sir Malcolm Rifkind were secretly filmed by the Daily Telegraph and Channel 4's Dispatches programme offering to use their positions of power to benefit a private company in return for cash.
Both men have strongly denied any wrongdoing.
A Labour Party spokesman said: "We have seen the disturbing allegations against Jack Straw in the Daily Telegraph. The chief whip has spoken to Jack Straw.
"He has agreed to refer himself to the Parliamentary Commissioner for Standards and in the meantime he has agreed the best course of action is to suspend himself from the parliamentary Labour Party."