Watch Stephen Sackur's report from Washington

Plato Cacheris: "For her full and truthful testimony she will receive transactional immunity"

Her lawyer said Miss Lewinsky would receive immunity for a full and truthful testimony.

In a statement, Plato Cacheris said: "We, as counsel for Monica Lewinsky, have reached an agreement today that for her full and truthful testimony she will receive transactional immunity in this case."

Ms Lewinsky's mother, Marcia Lewis, has also received the same level of immunity according to her lawyers.

Mike Mc Curry: President "pleased that things are working out for her"

Whitehouse spokesman Mike McCurry told reporters the president was pleased that things would work out for Miss Lewinsky.

"Her lawyer said that she's going to give complete and truthful testimony, and if she does, that should present no problem to the president, obviously, " he said.

Lawyer Plato Cacheris annoucing the deal

Transactional immunity means Miss Lewinsky can now give evidence to a grand jury about whether she had a sexual relationship with Mr Clinton and if he asked her to lie about it, without fear of prosecution.

Miss Lewinsky is also reported to have told prosecutors that she did have sex with President Clinton.

However, she is said to have denied that Mr Clinton asked her to lie about it.

The nature of the sexual relations between President Clinton and Miss Lewinsky has not been disclosed. Previously she has indicated in private conversations that, "nothing was taken to completion".

The BBC's Washington correspondent Philippa Thomas: "Big step for Kenneth Starr and his investigation"

President Clinton has also been called to give evidence before the jury.

Mr Clinton had been due in court today but his appearance was postponed by mutual agreement.

His lawyers are conducting behind-the-scenes negotiations about where he should give evidence, whether his attorney can be present, and whether the scope of questioning can be limited.

It is understood that while Mr Starr would like to bring the president before the Grand Jury within days, the White House is calling for more time to prepare, perhaps pushing back any testimony to as late as September.

The BBC Washington correspondent says that if Miss Lewinsky repeats her alleged remarks in court, it would put the president in a difficult situation.

However, he says, her denial that there was a cover-up might ease the president's position, as most Americans would regard a cover-up as the more reprehensible sin.

Further blow to Clinton team

In a further blow to the presidential defence team, a court ruled on Monday that Mr Clinton's top confidant could not evade grand jury questioning.

President Clinton's lawyers continue negotiations

Mr Starr's latest attempts to secure testimonies from key witnesses have proved remarkably successful.

Last week he issued a subpoena summoning President Clinton, who has denied the allegations under oath, to appear before the Washinton grand jury - the first ever legal summons served on a sitting US president.

He was then granted the right to question White House lawyer Bruce Lindsay - one of the president's closest friends - about what he was told by Mr Clinton.

An appeal court ruled on Monday that Mr Lindsey was not immune from questioning before the grand jury because of his position.