In an echo of the MPs expenses scandal, which shook the British political establishment three years ago, Baroness Sayeeda Warsi, the high-profile co-chair of the ruling Tory party and a member of Prime Minister David Cameron's Cabinet, was on Sunday at the centre of a row over allegations that she fiddled her expenses.

Lady Warsi was accused of wrongly claiming more than £12,000 for overnight accommodation in London despite staying rent-free in a friend's house.

Denying the allegation made in The Sunday Times, she said she made “appropriate” payments — equivalent to her claims — to a party official, Naweed Khan ,who was renting the property where she spent “occasional nights”, a claim confirmed by Mr. Khan.

“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,” she said.

Mr. Khan said: “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.”

But the owner of the property, Dr. Wafik Moustafa, a Tory party supporter, denied receiving any money.

“I never discussed payment with Baroness Warsi or Naweed Khan,” he said.

Under the rules, MPs and peers whose main home is outside London — Lady Warsi's main home is in Dewsbury, West Yorkshire — are entitled to claim overnight expenses for staying in the capital when Parliament is in session.

In another development, Lady Warsi admitted not declaring her full rental income from a flat she owns in the capital. Describing it as an “oversight” she said she took full responsibility for it. She said she declared the income on the register of ministerial interests but failed to do it on the Lords' register.

“When the discrepancy became apparent this week, I immediately informed the registrar of Lords' interests of its omission,” she said.

Labour called for an investigation describing it as a “murky” affair.

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