The claims are made in a review of Jane Austen's letters published in the August issue of the London Review of Books by Terry Castle, Professor of English at Stanford University in California.
Under the front-page headline "Was Jane Austen Gay?" Professor Castle notes the "passionate nature of the sibling bond" between the two, their shared bed, and Cassandra's jealousy of her sister's affection.
Quoting a description in a letter to Cassandra in which Jane described a gown being made up for her in Bath, Castle goes on to speculate on the writer's "homophilic fascination" with women and her flirtatious manner toward her sister.
"The conventions of 19th-century female sociability and body intimacy may have provided the necessary screen behind which both women acted out unconscious narcissistic or homoerotic imperatives," she adds in her review of Jane Austen's Letters, edited by Deirdre le Faye.
Yesterday, scholars hit back at the allegations, suggesting that the American academic was poorly informed about the historical and social context of the novelist, who lived at Chawton in Hampshire with her sister, and died at 43 in 1817.
Brian Southam, chairman of the Jane Austen Society, criticised the professor's lack of knowledge about life at the time. "We have absolutely no evidence either way, but nothing can be read into the sisters sharing beds. That was common practice," he said.
Others agreed. "I think it's about as likely Jane Austen was gay as that she was found out to be a man," said Claire Tomalin, who was recently commissioned to write a biography of Austen.
Scholars also dismissed suggestions that both Cassandra and Jane, author of Pride and Prejudice and Persuasion among other novels, turned down proposals of marriage because they were lesbian.
"They were totally wrapped up in each other but they could have had independent lives. After all, Cassandra wanted to get married: she was preparing her wedding dress when her fiance Tom Fowle went to the West Indies and died of yellow fever," said Helen Lefroy, descended from Anne Lefroy, who was a friend of Austen.
"One of the reasons that Jane Austen didn't marry is because she saw her destiny as a writer quite early on." In fact, Austen did accept one of her suitors, only to withdraw her acceptance the next morning.
Elizabeth Jenkins, whose 1938 biography of Austen is still in print, said it was ridiculous to imply the sisters were incestuous because they shared a bed.
"It shows such ignorance of the domestic conditions of the time because people did sleep in each other's beds. It was a natural thing, partly because they didn't have central heating."
Tom Carpenter, a trustee of the Jane Austen Memorial Trust which runs the museum based at her former home, added that scholars had never established whether the sisters did sleep in the same bed.
"It's quite a small room, but they could have got two beds in there. I suspect the sisters had a separate dressing room and they might not have seen each other without clothes."