The Cabinet Office has denied trying to cover up information about Downing Street's knowledge of Sir Cyril Smith's abuse of young boys before he was knighted.
Documents show Margaret Thatcher was made aware of the claims about the Liberal MP before he was handed the honour in 1988.
The 19-page dossier of information on the decision to give Smith the knighthood contains several letters, including an undated one from a Political Honours Scrutiny Committee member to the then prime minister.
In the letter, marked secret, Lord Shackleton said police investigated Smith in 1970 for "indecent assault against teenage boys" between 1961 and 1966.
But, the letter noted, the Director of Public Prosecutions (DPP) decided "there was no reasonable prospect of conviction".
The letter to Mrs Thatcher 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 also said it would be "slightly unfortunate" if this "episode" stopped Smith, who died aged 82 in 2010, receiving the knighthood.
But he 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 documents were released to the Mail on Sunday following repeated demands for disclosure under the Freedom of Information Act since April last year.
The documents were only made public on Friday after an intervention by the Information Commissioner, the paper said.
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."
The newspaper reported a second letter to Mrs Thatcher, dated May 1988, said the committee had "some hesitation" about giving Smith the honour.
But, the letter continued, "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".
The documents also reveal the country's most senior civil servant, then cabinet secretary Sir Robin Butler, wrote to the DPP to find out why Smith was never charged over the alleged offences against boys.
He said the Political Honours Scrutiny Committee wanted to know if "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".
No reply from the DPP is recorded in the file, according to the Mail On Sunday.
Labour MP Simon Danczuk, who wrote a book about the allegations against Smith, claims both David Cameron and Nick Clegg "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," he told the Mail on Sunday.
"Both men need to come clean and make a personal commitment to revealing everything that is now held by Government departments."
Smith served as the Liberal and later Liberal Democrat MP for Rochdale between 1972 and 1992.
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