The Westminster sex abuse scandal has deepened further after accusations in a Sunday newspaper that former Prime Minister Margaret Thatcher personally covered up allegations that a senior minister abused young boys during the 1980s.

According to The Sunday People, Thatcher was aware of allegations that a senior minister, described as a "rising star" in the Conservative party in the 1980s, abused young boys at the home of a political ally in 1982.

Thatcher summoned the minister to a "high-powered meeting" involving the Conservative Party top brass and senior police officers, but did not dismiss or even discipline the MP, merely telling him to "clean up his sexual act", the source claims.

But the source alleged that far from cleaning up his act, the minister went on to continue to seek out young boys for sexual acts. The story claims the minister was even arrested as part of a police sting operation in 1986, for seeking rent boys in the toilets of London's Victoria railway station. Again, the police took no action

Other allegations suggest that the same politician may also have solicited young boys for sex at a vice spot known as the "chicken rack" – a set of railings near Piccadilly Circus in London that was a known spot where boys as young as 13 were allegedly targeted by paedophiles.

The explosive allegations claim for the first time that Thatcher was involved in covering up a Westminster paedophile ring, and that the child abuse network extended all the way to the very top of the British Government and the Metropolitan Police.

Labour MP Tom Watson said the latest allegations should be investigated by Baroness Butler-Sloss, who has been appointed to lead an investigation into the claims.

Watson said: "If true, these extraordinary ­revelations reveal a remarkable state of affairs – so much so that they're almost impossible to imagine. Yet that is what people said about Jimmy Savile and look what happened with him. These claims should be investigated by the new child abuse inquiry."

A spokesman for the Metropolitan Police said: "We will fully co-operate with the panel chaired by Baroness Butler-Sloss and provide detail of relevant information. While these and live police investigations are ongoing it would be inappropriate to comment further."