The start of the case marks the latest development in the cash-for-questions affair, which cost Mr Hamilton his Tatton constituency and helped Labour soar to power at the 1997 general election.

An inquiry headed by Parliamentary Commissioner Sir Gordon Downey ruled evidence "points compellingly to the conclusion that Mr Hamilton accepted cash payments from Mr al-Fayed in return for lobbying services".

Mohamed al-Fayed: Alleged Hamilton took cash and gifts

Mr Hamilton is now seeking to bring a defamation action against the Harrods boss after Mr al-Fayed repeated his allegation in a television programme.

George Carman QC, representing Mr al-Fayed in the hearing to determine whether the libel case can proceed, said it "raises serious constitutional questions".

Attorney General John Morris and Speaker of the House of Commons Betty Boothroyd have ordered Parliament should be represented hearing.

Mr Carman asked the three appeal judges: "Can a former Member of Parliament bring a libel action which would seek to set aside findings about his conduct which have been made by the Parliamentary Commissioner for Standards?"

High Court judge Mr Justice Popplewell ruled last year it was doubtful whether a court would have found Mr Hamilton guilty of taking cash from Mr al-Fayed.

Sir Gordon Downey: His report found "compelling evidence" to support al-Fayed's claim

He ruled the appeal should be allowed to go ahead and would not affect the earlier parliamentary ruling.

But Mr Carman said any libel case would "necessarily involved questioning proceedings in Parliament in clear contravention of Article 9 of the Bill of Rights whereby such proceedings are not to be questioned in any court".

This would be tantamount to an "attack on Parliament's own investigation into Mr Hamilton when he was a member of the House".