"If these comments are accurate we utterly condemn these remarks which are totally unacceptable.
"The international community is rightly doing all in its power to seek justice for the victims of the Mumbai bombings and halt terrorism."
The newspaper said the peer called the US bounty on Saeed "an insult to all Muslims".
"If the US can announce a reward of £10m for the captor of Hafiz Saeed, I can announce a bounty of £10m on President Obama and his predecessor George Bush," he is reported to have said.
Lord Ahmed firmly denied offering a bounty - but said he had told the meeting that Mr Bush and ex-Labour Prime Minister Tony Blair should be prosecuted for war crimes.
Speaking from Pakistan, he said no one from Labour had contacted him before announcing the suspension and challenged it to provide evidence for the decision.
"They have suspended me? That's a surprise to me. I did not know," Lord Ahmed said.
Asked about the reported comments, he said: "I never said those words.
"I did not offer a bounty. I said that there have been war crimes committed in Iraq and Afghanistan and those people who have got strong allegations against them.
"George W Bush and Tony Blair have been involved in illegal wars and should be brought to justice.
"I do not think there's anything wrong with that."
He added: "If the Labour Party want to suspend me I will deal with the Labour Party. They will have to give me some evidence."