REVEALED: Cyril Smith was 'arrested at sex party' but undercover police probe was scrapped

The Liberal MP was arrested during a three-moth inquiry in the early 1980s, where officers had  gathered a substantial amount of evidence of men abusing boys aged around 14.

Evidence included photographs and video taken from inside a flat with a hidden camera that had been installed with the help of a caretaker.

But just hours after his arrest at a property in Streatham, south London, where he had been taking part in a sex party with teenage boys, Smith was released. 

According to information obtained by the BBC's Newsnight, officers were then ordered to hand over all of their evidence - including notebooks and video footage - and warned to keep quiet about the investigation or face prosecution under the Official Secrets Act, it is claimed. 

A desk sergeant was also reprimanded for wanting to keep him in custody, according to Newsnight. 

This comes less than 24 hours after the police watchdog said it was investigating claims that Scotland Yard covered up child sex offences because of the involvement of MPs and police officers.

The Independent Police Complaints Commission (IPCC) announced it was investigating 14 referrals with details of alleged corruption in the Metropolitan Police relating to child sex offences from the 1970s to the 2000s yesterday. 

Among them is a claim that a Houses of Parliament document found at a child sex offender's address linked a number of "highly prominent individuals" including MPs and senior police officers to a paedophile ring but no further action was taken.

An investigation into young men being targeted in  Dolphin Square apartment block in Pimlico, west London, where it is alleged VIP sex parties involving underage boys took place, was also allegedly stopped because officers were "too near prominent people", the IPCC said.

Others include a claim an abuse victim's statement was altered to omit the name of a senior politician implicated in the crime, and another allegation that no action was taken over the discovery of a document listing MPs and police officers involved in a paedophile ring.

In July last year the Home Secretary Theresa May announced a major public panel inquiry into whether paedophiles were protected by the Government, the NHS, police, the courts and the BBC.

The prove has since been rocked by the resignations of two people selected to be its chair - Baroness Butler-Sloss and Fiona Woolf - following accusations that they were too close to the establishment to be independent.

Later it was announced that the inquiry would be chaired by Justice Dame Lowell Goddard, a New Zealand High Court judge.

Newsnight said it had received the information about the Smith investigation by a former officer familiar with the original investigation and its closure.

The programme was informed of the intelligence-led operation, which it is believed began in 1981 and involved a team of undercover regional crime squad officers, including some from Yorkshire, who were based at Gilmour House - a large police headquarters in Kennington in south London.

The team targeted six or more addresses in south London, including a flat in Coronation Buildings in Lambeth - a rundown tenement block around a mile from the House of Commons.

The squad believed that boys from care homes were being provided "to order" for sex parties.

Newsnight has also been told that the squad had evidence relating to a member of Britain's intelligence agencies and two senior police officers.

The inquiry was abruptly shelved when the squad was called together at Gilmour House and instructed to hand over their notebooks, photographs and video footage relating to the investigation.

They were read passages from the Official Secrets Act to deter them from speaking out, according to one account. 

Officers were assured those who had been caught "would not be playing a role in public life any more", but Smith continued as an MP until 1992.

He died in 2010.