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Justice Secretary Jack Straw has ordered an inquiry into claims police bugged a Muslim Labour MP as he visited a constituent in jail.
Tooting MP Sadiq Khan and Babar Ahmad were recorded twice in Milton Keynes's Woodhill Prison, the Sunday Times says.
The US is seeking to extradite Mr Ahmad on suspicion of running websites raising funds for the Taleban.
Mr Straw said it was "completely unacceptable" for an MP to be recorded while talking to a constituent.
The Conservatives are demanding a fresh Commons statement over the bugging of an MP which they say has made a "liar" of the Prime Minister Gordon Brown.
It followed the revelation Home Office and Ministry of Justice officials were told about the incident in December.
Shadow home secretary David Davis said the case made the PM a "liar" as it countered prime ministerial pledges to protect MPs from bugging.