The UK's opposition Labour party has lifted the suspension of Lord Nazir Ahmed who was quoted by a Pakistani newspaper as offering a 10-million-pound bounty on President Barack Obama after the US announced a reward for information leading to LeT founder Hafiz Saeed's prosecution.

Lord Ahmed, who had denied offering the bounty, told the BBC he was delighted that a "fair" Labour investigation led to lifting of the suspension.

He was suspended from the party after his alleged remarks made during a visit to Pakistan in April were published in the British news media.

The Pakistan-based 'Express Tribune' had quoted Lord Ahmed, a member of the Labour party for 34 years, as saying: "If the US can announce a reward of 10 million dollars for the captor of Hafiz Saeed, I can announce a bounty of 10 million pounds on President Obama and his predecessor George Bush."

The paper later corrected the article, but Lord Ahmed said: "I'm shocked and horrified that this whole story could be just made up of lies. I never mentioned President Obama, I never mentioned the word bounty."

He said: "It was a discussion about people investing in Pakistan and yes, I did talk about illegal wars in Iraq and Afghanistan and Bush and (Tony) Blair involved in it. But I did not mention any bounty or President Obama and the sort of rubbish that's been on the media."

Thanking Labour chief whip Lord Bassam, Lord Ahmed told the BBC Asian Network that his colleagues in the House of Lords had been "very sympathetic" while the suspension was in place.

The story was full of "lies", he said, adding he was considering taking legal action against the Express Tribune.

A Labour Party spokesperson said "Lord Ahmed is no longer suspended from the Labour Party" but would not expand on that statement.