The Lords sleaze watchdog is investigating Baroness Warsi's expenses after she asked him to examine allegations she claimed for accommodation while staying rent-free at a friend's house.
The Tory co-chairman insists the payments were within both the spirit and the letter of the rules governing parliamentary allowances.
Downing Street said David Cameron had full confidence in her and rebuffed suggestions she should stand down until her name had been cleared.
Lady Warsi attempted to take the heat out of the controversy by asking Paul Kernaghan, the Lords Commissioner for Standards, to scrutinise her case. Speaking during a visit to Malaysia, she said: "I take these allegations very seriously – it is why I said right at the outset that I would fully co-operate with any investigation.
"I believe being a member of the House of Lords is a privilege. I take that privilege seriously. It's why I have always ensured my conduct, including in relation to expenses and allowances, is both in accordance with the law and the spirit of the rules."
The Labour MP John Mann, supported by his party's front bench, also referred her to the Commissioner. He claimed that her move was designed to "sideline" scrutiny of her expenses claims.
A spokesman for Mr Kernaghan said: "The Commissioner has to do an initial assessment of the allegations and check whether it falls within his remit and see if it needs further investigation. If it does, he will launch a formal investigation, but we aren't at that stage yet."
The allegations centre on nights Lady Warsi spent in 2008 at a friend's flat in Acton, west London. She claimed overnight subsistence – worth up to £165.50 a night – for the stays. She says she passed the money to the friend, Naweed Khan, who is now her special adviser and has supported her version of events. But the property's owner, Dr Wafik Moustafa, a former Conservative donor, said he had received "not a penny" from either Lady Warsi or Mr Khan.
Tory sources said she stayed for about 12 nights over a six-week period, suggesting she could have collected around £2,000. However, they refuse to disclose how much she received for her claims or in what form the money was paid.
In a further embarrassment to Lady Warsi, she was forced to admit failing to declare rental income from 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 apartment in the Register of Ministers' Interests.
Even if the storm passes, the allegations increase the prospect the Prime Minister will move Lady Warsi to a less high-profile Cabinet post at the next reshuffle. She has faced criticism of her performance as co-chairman, although her allies say Lady Warsi, the first Muslim woman to sit in the Cabinet, is still the victim of some "institutional racism" within the party. Sir Alistair Graham, the former chairman of the Committee on Standards in Public Life, said peers had recently been jailed for false expenses claims and added that there could be a complaint to the Metropolitan Police in this case. Tory sources have derided the suggestion.Reuse content