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Labour MPs are calling for an investigation into an expenses claim by the co-chair of the Conservative Party, Baroness Warsi, in 2008.

Questions are being asked about whether she paid rent at a London house, for which she claimed an allowance.

Shadow business secretary Chuka Umunna told the 91�ȱ�'s Sunday Politics there had to be a "proper" investigation.

Lady Warsi said she made "appropriate" payments equivalent to what she was paying at the time in hotel costs.

The deputy chairman of the Conservative Party - Michael Fallon - told Sky News the controversy was "embarrassing", but said Lady Warsi believed she acted within the "spirit and letter" of the rules.

At the time, peers living outside London were allowed to claim up to £165.50 a night subsistence for staying in the capital.

Baroness Warsi says she was paying a friend who was renting the property, Naweed Khan.

But the owner of the property in Acton, west London, Dr Wafik Moustafa, says he never received any money from her.

"I never discussed payment with Baroness Warsi or Naweed Khan," he told the 91�ȱ�. Asked if there was any question Lady Warsi had paid by the night or by the week he replied: "Not at all. Not a penny was paid."

Mr Khan, a Tory party official, said the baroness had paid him an unspecified amount to cover his costs.

"In the early part of 2008, for a short period, Baroness Warsi stayed with me," said Mr Khan, who later became her special adviser.

"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."

In a statement the baroness, whose main home is in Dewsbury, West Yorkshire, said she bought a flat in Wembley in September 2007 but it was not due to be ready until the following year.

While it was being finished she stayed predominantly at two hotels, but also for "occasional nights" in Acton with Mr Khan.

She says she stayed there for about two nights a week over a six-week period at the start of 2008.

"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."

Mr Fallon said Lady Warsi admitted making a mistake and apologised for it.

"She believes [she acted] within the spirit and the letter of the rules as they were then and she is very happy to cooperate with any investigation."

But Mr Umunna told the 91�ȱ�'s Sunday Politics there had to be a "proper independent investigation".

"I do not think this is anything any politician from any political party can crow about. When you see these types of stories being reported, it is bad for politics generally."

Earlier, Labour MP John Mann said he would be asking the Lords Commissioner for Standards to investigate, adding: "It all seems very murky."

The rules for expenses claims by members of the House of Lords, <link> <caption>as set out on the Parliament website for the year 2007-08</caption> <altText>Parliament website</altText> <url href="http://www.parliament.uk/mps-lords-and-offices/members-allowances/house-of-lords/holallowances/explanatory-notes/2007-08/#jump-link-5" platform="highweb"/> </link> , say members living outside London can claim a maximum of £165.50 a night.

It does not say if that figure may include additional expenses such as meals. Nor does it say whether receipts are required, although the amount of expenses MPs could claim without a receipt was cut from £250 to £25 in April 2008.

In a separate development, Lady Warsi admitted not fully declaring rental income from the Wembley flat after she moved out in June 2010.

The baroness said she took full responsibility for that "oversight".

Party sources have not revealed the full amount Lady Warsi earned from renting her property, but they say it is over the £5,000 annual limit before full disclosure is required.

The baroness had declared the property on the register of ministerial interests but she failed to inform the register of Lords' interests that she was letting the property.

Baroness Warsi added: "When the discrepancy became apparent this week, I immediately informed the registrar of Lords' interests of its omission."