The Conservatives have suspended the whip from Sir Malcom Rifkind after he was filmed allegedly offering to use his influence in exchange for cash.
Reacting to the scandal, Prime Minister David Cameron said: "These are very serious matters and we have very clear rules in this country."
He said he thought it was "right" that Sir Malcolm and Labour's Jack Straw, who is also embroiled in the allegations, refer themselves to the Parliamentary Commissioner for Standards.
Mr Cameron added: "These are serious issues, they need to be properly looked into, and I'm sure they will be."
Both Sir Malcolm and Mr Straw deny any wrongdoing.
Mr Straw has suspended himself from the Labour Party while the claims are investigated.
They emerged following a joint investigation by the Daily Telegraph and Channel 4's Dispatches.
Reporters claiming to represent a Hong Kong-based communications agency called PMR contacted the MPs to say they were seeking to hire senior British politicians to join the company's advisory board.
Sir Malcolm, who chairs the parliamentary committee which oversees Britain's intelligence agencies, is said to have claimed he could arrange "useful access" to British ambassadors because of his status.
Mr Straw boasted of operating "under the radar" to use his influence to alter EU rules on behalf of a commodity firm that paid him £60,000 a year.
In interviews with Sky News, the pair hit back.
Mr Straw said he was "mortified by the fact that I'd fallen into a trap", and insisted he was discussing what he might do when he stands down as an MP.
He said: "If I didn't believe it was morally right I wouldn't have done it at all.
"I'm quite clear that what I've done is morally and ethically right and is also within the rules."
Sir Malcolm said the allegations were "completely unfounded" and vowed to "fight them all the way".
He said: "I wasn't embarrassed by them.
"I was annoyed, very angry, because when your reputation is being attacked that is something you hold dear to.
"I've been in public life for a long time, I know what is permitted, what is proper, and that's what I stick to."
Labour leader Ed Miliband called the claims "disturbing".
He has written to the PM, calling on him to ban MPs from holding paid directorships and consultancies, an idea Mr Cameron has rejected.
Deputy Prime Minister Nick Clegg said the allegations felt like "Groundhog Day - this keeps coming round".
UKIP leader Nigel Farage said it was "very questionable" whether Sir Malcolm could continue to chair the Intelligence and Security Committee.
Mr Cameron declined to say whether he believed Sir Malcolm should stand down from that position while he is suspended, stressing the chairman was selected by the committee and not the PM.
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