One of the central recommendations of Lord Justice Leveson's report on press regulation could be unlawful, lawyers commissioned by the newspaper industry have warned.
The joint opinion by three leading QCs concluded that plans to award punitive damages against newspapers which do not sign up to a new regulator violate Article 10 of the European Convention on Human Rights, which protects freedom of expression, The Times reported.
But the lawyers' opinion was challenged by Hugh Tomlinson QC, chairman of the Hacked Off campaign, who said it was "misconceived" and "another piece of propaganda" from the press.
Lord Justice Leveson recommended the threat of exemplary damages as a way of providing an incentive for newspapers to voluntarily come within the remit of the new regulator.
But the opinion by Lord Pannick, Desmond Browne and Antony White claimed the proposals are "objectionable in principle due to their arbitrary extension of what is widely regarded as an anomalous feature of English law".
The opinion also said the proposals single out a particular category of defendant rather than a particular kind of conduct.
"To punish the press for what others may do without punishment is inconsistent with the special importance that domestic and Strasbourg jurisprudence attach to freedom of the press," the lawyers said.
The proposals could have a "chilling effect" on free speech which was "obvious and unjustifiable", they added.
But Tomlinson told BBC Radio 4's Today programme: "The opinion is misconceived because the simple position is what Lord Justice Leveson is recommending is actually a very small change to the law. We already have exemplary damages, they are already available against the press.
"Under his recommendations they will just be available for certain new cases of privacy and they will be available only in cases where there was an outrageous and deliberate disregard of rights."
A parliamentary showdown on the proposals is looming after Labour peer Lord Puttnam succeeded in amending the Defamation Bill to include establishing a Leveson-style arbitration system, with the prospect of judges taking into account whether a defendant refused to join it when deciding on exemplary damages.
A judge would also be able to take into account whether a defendant newspaper sought advice from a new regulator before publication, raising fears over censorship.
Tory former cabinet minister Lord Fowler, who backed Lord Putney's amendment, is proposing his own change to the Bill to remove that provision.
But Tomlinson said: "In Lord Putney's (amendment) there is consideration of whether or not there has been pre-publication advice. There is no question of censorship.
"Exemplary damages, under anybody's Bill, will only be awarded if the conduct is outrageous."
The Defamation Bill returns to the Lords on Monday and David Cameron has made clear that the Putney amendment will not become law - potentially resulting in the whole shake-up of libel laws in the legislation being scrapped unless peers or MPs throw out the changes.