The Cabinet Office has denied attempting to cover up information about Whitehall's knowledge of Cyril Smith's child abuse at the time he was granted a knighthood.
Documents have revealed that Margaret Thatcher was made aware of allegations involving the Liberal MP before he was given the honour.
The papers, released to the Mail of Sunday following repeated demands for disclosure, also show that the country's most senior civil servant wrote to the director of public prosecutions to find out why Smith did not face justice for alleged offences against teenage boys.
The newspaper first requested the documents under the Freedom of Information Act in April last year but they were only released on Friday following an intervention by the Information Commissioner.
The 19-page dossier of information on the decision to confer a knighthood on former Rochdale MP Smith in 1988 included one undated letter, marked secret, from a member of the Political Honours Scrutiny Committee to Mrs Thatcher, warning of "the risk that such an award could give rise to adverse criticism".
In the letter Lord Shackleton spelled out that police had investigated Smith in 1970 for "indecent assault against teenage boys" between 1961 and 1966, but the Director of Public Prosecutions (DPP) had decided "there was no reasonable prospect of conviction".
The letter to the then prime minister said the case was reported in the Rochdale Alternative Press and Private Eye, adding: "One may regret this kind of press reporting but it could be revived if an award to Mr Smith were made."
Lord Shackleton said it would be "slightly unfortunate" if this "episode" stopped Smith receiving the honour but added: "We felt it right to warn the honours system would be at some risk if the award were to be made and announced."
The newspaper reported that a second note to the prime minister, dated May 1988, admitted the committee had "some hesitation" about the award but "so far as we believe and have been able to ascertain, his past history or general character does not, in all the circumstances, render him unsuitable".
In another letter the committee's secretary said Smith had been given the "benefit of the doubt" because he had not been prosecuted.
The then cabinet secretary Sir Robin Butler - now Lord Butler of Brockwell - wrote to the DPP on the committee's behalf to seek more information about Smith's case.
He said: "The case for taking the exceptional step of writing to you in this way is to protect the Prime Minister (and The Queen) while also being fair to Mr Smith."
He said the committee wanted to know "whether the case against Mr Smith was not well founded: or whether it was a sound case, but that the evidence was not likely to stand up in court".
The newspaper said no reply from the DPP is recorded in the file.
The papers were only released following five requests by the Mail on Sunday and the intervention of the Information Commissioner.
Campaigning Labour MP Simon Danczuk, who wrote a book about the allegations against Smith, accused the Prime Minister and Deputy Prime Minister of aiding a cover-up.
He told the Mail on Sunday: "Nick Clegg and David Cameron have colluded in covering this up. It involves their people and we should not have to learn about this piecemeal because of journalists pestering for information.
"Both men need to come clean and make a personal commitment to revealing everything that is now held by Government departments.
"The Prime Minister promised there would be no stone unturned into the inquiry of historic sex abuse in Westminster.
"But the Cabinet Office seems to be doing the opposite.
"Nick Clegg, who sits in this department, has already written to me refusing to carry out an investigation into who knew what about Cyril Smith in his party and it's disappointing to see the Cabinet Office continuing this unhelpful approach."
A cabinet office spokesman said: "There is no cover up nor was the Cabinet Office forced to release this information by the Information Commissioner.
"This is a sensitive and complex case and it is right that we considered advice from a range of officials. After considering the advice, the Cabinet Office decided to disclose information."
Liberal Democrat minister Lynne Featherstone said child abuse and child sexual exploitation had to be rooted out wherever it is found.
She told Sky News' Murnaghan: "There is a real issue and those Cabinet files in my view should without doubt be published.
"We have to get to the bottom of this. High or low, it doesn't matter. Wherever we find it, we have to root out sexual abuse, child sex abuse, child sexual exploitation.
"I think what is so horrific is the scale of it. "