Brexit Minister Steve Baker said he will apologise after claiming in the Commons that he had been told of an "extraordinary allegation" that Treasury civil servants were attempting to push the Government into a more pro-Europe stance.
The climbdown came after audio tape emerged contradicting his version of what had been said at a lunch during the Tory conference in October, at which he had claimed he had been told that Treasury officials were attempting to keep the UK in the customs union.
Mr Baker's explosive Commons comments came during an exchange with Brexiteer Jacob Rees-Mogg, chairman of the influential European Research Group of Tories.
The North East Somerset MP asked Mr Baker to confirm if he heard from Charles Grant, of the Centre for European Reform think tank, that "officials in the Treasury have deliberately developed a model to show that all options other than staying in the customs union were bad and that officials intended to use this to influence policy".
Mr Baker said the account was "essentially correct", adding: "At the time I considered it implausible because my direct experience is that civil servants are extraordinarily careful to uphold the impartiality of the civil service."
A Government source said that Downing Street considered the matter a genuine mistake, saying: "This was a genuine mistake, he has apologised to Charles Grant, and will clarify his remarks in the House.
"We consider the matter closed."
Downing Street then rowed in behind Mr Baker's version of events, insisting there was no reason to question his account of what was said.
But, after Prospect magazine released audio of the event which showed Mr Grant did not make the comments claimed, Mr Baker back-tracked.
He tweeted: "This morning in Parliament, I answered a question based on my honest recollection of a conversation.
"As I said, I considered what I had understood to be implausible, because of the impartiality of the civil service.
"The audio of that conversation is now available and I am glad the record stands corrected. In the context of that audio, I accept that I should have corrected the premise of the question.
"I will apologise to Charles Grant, who is an honest and trustworthy man. As I have put on record many times, I have the highest regard for our hard working civil servants. I will clarify my remarks to the House."
Mr Rees-Mogg said of Mr Grant: "If he says he didn't make it, he says he didn't make it, but he made a very similar claim on Twitter."
The minister's Commons claims had provoked a furious backlash from the union representing senior civil servants, which accused Mr Baker of being irresponsible and "cowardly" for failing to challenge the "conspiracy theory".
Before the audio tape emerged, Downing Street said a senior Number 10 aide had spoken to Mr Baker about his remarks, and that Prime Minister Theresa May had full confidence in the minister.
A spokesman for the PM told a Westminster briefing: "The minister has set out the events as he recalls them. We have got no reason to question his account.
"This relates to a private conversation which took place some time ago."
The controversy comes hot on the heels of Mr Baker drawing fire earlier in the week for dismissing Whitehall forecasts as "always wrong".
And, in what some at Westminster saw as a pointed intervention, the Cabinet Secretary and head of the UK civil service Sir Jeremy Heywood tweeted: "Proud to address @UKCivilService analysts yesterday.
"Every day their great work supports the Government in making evidence-based policy & helps deliver better public services across the country."
Mr Baker was challenged by Opposition MPs as he delivered his answer to Mr Rees-Mogg, prompting him to add: "I didn't say it was correct. I said the account that was put to me is correct.
"It was put to me, I considered it an extraordinary allegation, I still consider it an extraordinary allegation."
Mr Grant said he told Mr Baker during the Conservative Party conference in October that he was aware of research that the Treasury had done which apparently showed the economic benefits of the UK signing free trade deals around the world were less than the costs of leaving the customs union.
But Mr Grant said: "I did not say or imply that the Treasury had deliberately developed a model to show that all non-customs union options were bad, with the intention to influence policy."
Dave Penman, general secretary of the FDA union which represents senior officials, said: "To stand at the despatch box and refuse to challenge a half-baked conspiracy theory about the civil service - one that is even now being disowned by its supposed source - is the height of irresponsibility from a serving minister."
SNP Europe spokesman Peter Grant MP said: "Steve Baker's comments were completely unjustifiable, and a sign of the chaos gripping the UK Government."