THE co-chairman of the Conservative Party has found herself in the middle of an expenses dispute after staying at a friend's house in Acton.

Baroness Warsi, Britain’s first female Muslim cabinet minister and a member of the House of Lords, has denied claims that she stayed rent-free at the home of colleague Naweed Khan in early 2008. She insists she stayed for only ‘occasional nights’ and made ‘an appropriate financial payment’.

The peer said while work was being completed on a property she bought in Wembley in September 2007, she stayed ‘predominantly in two hotels’ when working in London on official business.

In a statement, she said: “Not having made advanced bookings for these hotels, there was a period of around six weeks when I spent occasional nights at a flat in Acton, which was occupied by Naweed Khan, at the time a member of the Conservative campaign HQ staff.

“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 Khan, a Tory official, confirmed he received payments from his colleague, but his landlord Dr Wafik Moustafa has disputed receiving any such payment.

Up until summer 2008, peers whose main residence was outside the capital could claim up to £165.50 per night for overnight accommodation costs in London.

Lady Warsi also admitted she failed to declare rental income from the Wembley flat to the House of Lords register of interests, when she moved to another address in central London in June 2010. She called it an 'oversight, for which I take full responsibility'.

Labour MP John Mann said he will refer her to the Lords Commissioner for Standards - an investigation Lady Warsi she said she is willing to co-operate with.