Clarence House's statement on an unspecified allegation has denied any involvement by Prince Charles or that any incident took place at all.
BBC royal correspondents Peter Hunt and Nicholas Witchell explain the implications of the unprecedented statement.
Why have Clarence House and the prince's aides chosen this moment to make a statement?
There is a feeling at Clarence House that things have reached a point where they just had to speak out, that there is such a swirl of rumour and speculation - it has been going on now for the best part of a week - that continued silence by them would be taken to indicate there was something to hide.
What has bothered royal officials is that it is being talked about in pubs, clubs, shops and workplaces across the land.
That is why Clarence House - the official London residence of the Prince of Wales - has decided to make this very strong statement, which in essence, is that the Prince of Wales was not involved, this allegation is not true.
What more can the media say about the allegation?
There is quite a lot we cannot talk about. There is an allegation out there. It is covered by a court injunction. We cannot go into the detail of the court injunction.
Will there be any more court proceedings?
That is unclear. There were at one stage two court injunctions in place. One has been lifted.
We now know that it was lifted because the Guardian newspaper had been attempting only to name the person who had brought the first injunction against the Mail on Sunday.
We now know that it was Michael Fawcett, a former palace aide who worked for the Prince of Wales.
The second injunction against the Guardian has been lifted, but the first one against the Mail on Sunday is still in place. It is unclear whether the Mail on Sunday will return to court on Friday to try and lift that first injunction
How has the prince and the palace been affected by the allegations, gossip and speculation?
The Prince of Wales, for the past eight or nine days, has been in India and appeared to be unaffected by it. But
there is bemusement and utter disbelief that a reputable newspaper would have felt that it was justified in placing such an allegation into the public domain.
They feel it is an allegation which is uncorroborated by any evidence, an allegation - clearly a serious allegation or there would not be all this fuss made about it - which comes from a single witness who has been unwell, who it is conceded is not a terribly reliable witness, a witness moreover who it must be expected has received payment from that tabloid newspaper. There is disbelief.
Does this mean a change in media strategy for the prince's aides?
There is a sense within palace circles, more precisely within the Prince of Wales' circle, that perhaps in the past they have let events happen, they have hidden beneath their castle and palace parapets and let the newspapers continue regurgitating these
They have decided to stand up and be counted and insist that it is not true.
What are the risks in this strategy for the prince and his aides?
There are always risks with these sorts of strategies.
The risk is that people will continue to talk about it now because it has confirmed certain facts which were not
in the public domain before now, which is
the fact that the Prince of Wales was named in this allegation.
What did the prince and his aides try to do to discourage the allegation being made public?
When the Mail on Sunday first contacted them about this story, the prince's lawyers wrote to them and said they would rather the newspaper did not publish it because it was just not true.
They could not publish it because of the court injunction taken out separately by the royal servant, but then published a story about the fact they were prevented.
What are the Queen's thoughts on the matter?
The Queen fully supports the action that has been taken by Sir Michael Peat and Clarence House, and is sympathetic.