Mr Simpson (left) made the allegations against Mr Molloy (right)
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The DUP's David Simpson has claimed that Sinn Fein assembly member Francie Molloy had been working as a police informer for almost 30 years.
The Upper Bann MP used parliamentary privilege to make the allegation in the House of Commons.
He said Mr Molloy was recruited by police in 1979 after being caught in a compromising position and provided information which damaged the IRA.
Mr Molloy, the assembly deputy speaker, rejected the claim as "rubbish".
He said he had nothing to fear from republicans because they knew the allegations were untrue.
He also challenged David Simpson to repeat his allegations outside the House of Commons, where he would not have legal protection for the remarks.
In the Commons on Wednesday, Mr Simpson said: "Molloy passed on information to the police in Northern Ireland. This helped them to break open the IRA's notorious East Tyrone Brigade.
"Prior to Molloy's recruitment, the East Tyrone Brigade had been virtually impregnable. After it they suffered setbacks taking direct hits and losing personnel."
However, Mr Molloy said: "Unionist death squads in the past never stopped me going about my work representing Sinn Fein and the people who elect me.
"A unionist MP standing up in the British House of Commons will not succeed in this either."
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