Conservatives at Westminster received the news with dismay as sources close to the scene confirmed that the 45-year-old MP was dressed in stockings and suspenders when he was found at his home in Hammersmith, west London, yesterday afternoon.
As a post-mortem examination was under way late last night, police refused to comment on unconfirmed reports that the MP had been bound and gagged.
After the initial shock among Tory MPs, the spectre of an embarrassing by-election in the Hampshire seat of Eastleigh loomed large.
Mr Milligan, a former BBC and Sunday Times journalist, was elected in 1992 with majority of 17,702 over the Liberal Democrats, but Tory whips privately concede that recent scandals and grassroots rebellions mean no seat is safe.
The MP, who was unmarried, was found dead at his home in Black Lion Lane by Vera Taggert, his political secretary, who had been trying to contact him for days. One officer said: 'The body was naked except for a pair of stockings and suspenders.'
A Scotland Yard spokesman said a 999 call was received at 4.23pm.
'Inside was the body of a white male,' the spokesman added. 'We are not prepared to discuss the nature of possible injuries. We are certainly treating the death as suspicious.'
Officers, led by Detective Superintendent Brian Edwards, were examining the scene hours after the discovery. An ambulance, which arrived shortly after the police, was turned away. The body remained inside for five hours, when it was removed to Fulham mortuary for the post-mortem examination.
Mr Milligan was regarded as a pro-European liberal with a dazzling future. In November 1992, only seven months after entering Parliament, he was promoted to the first rung of the ministerial ladder as Parliamentary Private Secretary to Jonathan Aitken, the Minister of State for Defence Procurement.
Previously, he had been European correspondent for the BBC, foreign editor of the Sunday Times, industrial editor of the Economist and presenter of BBC Radio Four's The World Tonight.
Last night, Mr Aitken told Channel Four News: 'Like everyone, I am devastated by the loss. Stephen Milligan was a rising parliamentary star. His sterling character, his intellectual ability and his formidable talent as a communicator had already marked him out for a distinguished career.
'I shall miss him with profound sadness, both as a close friend and as an outstanding parliamentary private secretary.'
Kenneth Clarke, the Chancellor of the Exchequer, said: 'This is a dreadful piece of news. He was one of the best of our new members.'
During a flurry of activity after the discovery of the body, Andrew Mackay, a government whip, confirmed it was Mr Milligan. Shortly afterwards, Sir Norman Fowler, the Conservative Party chairman, arrived at Hammersmith police station looking shocked. When he left several hours later, he said: '(Mr Milligan) was one of the outstanding intake of new members who came in and he had already made his mark. From every conceivable point of view, this is a great tragedy.'
News of Mr Milligan's death dismayed the Government. 'This is the last thing we needed,' said one minister, as MPs discussed the death in the Commons lobbies.
It was seen as a devastating blow for John Major, who had hoped the Government had recovered from the wave of sex scandals which knocked the 'back to basics' campaign off course last month. Mr Major was said last night to be 'shocked and dismayed'.
Mr Milligan, a European expert, was a loyal 'Majorite' who had quickly made his mark after entering the Commons in the 1992 general election. 'If anyone could have counted on promotion in the next reshuffle, it was Stephen,' said one of his Tory friends.
A government whip said: 'I discussed his future with him for half an hour on Friday. He was very happy and very relaxed, not at all likely to commit suicide.'
Downing Street was refusing to comment until formal identification had taken place. That was not expected until early today.
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