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| Lord Ahmed denied offering a 'bounty' for the capture of US President Barack Obama |
Lord Nazir Ahmed's Labour Party suspension comes after claims he was said to have offered the cash for the capture of Barack Obama and White House predecessor George Bush
Pakistan's Express Tribune newspaper said the remarks were made by Lord Ahmed at a reception in Haripur, Pakistan on April 13.
He allegedly made the comments at the function in response to an American reward for the capture of a prominent Pakistani radical.
Hafiz Muhammad Saeed, who founded the violent extremist group Lashkar e Taiba, is blamed for the 2008 Mumbai terror attacks in which 166 people were killed.
A Labour spokeswoman said: "We have suspended Lord Ahmed pending investigation.
"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."
