A conversation between the Australian Prime Minister and out-going US president George W. Bush has threatened to turn into a diplomatic row between the two countries, after details of the private chat were leaked to the Australian media.

During a pre-arranged phone call between the two leaders, held during a dinner party at the Prime Minister’s Sydney residence on the evening of October 10, Mr Bush and Mr Rudd discussed the G7 plan for a co-ordinated response to the world financial markets crisis.

As Mr Rudd argued plans to resolve the global financial turmoil should include Asian countries and should therefore be discussed at a summit of the broader G20 grouping, Mr Bush asked the Australian leader: "What's the G20?", according to The Australian newspaper.

The details of the conversation have since been denied by both leaders. However foreign diplomatic sources told Sydney’s Sunday Telegraph newspaper that their Washington counterparts were “gobsmacked” at the leak of details of such a phone call.

They told the paper the perception that it was Mr Rudd who leaked the details of his conversation with Mr Bush could cause damage to Australia’s close alliance with America and cast doubts internationally over his trust as a leader.

Mr Rudd today again denied Mr Bush had made the G20 remark attributed to him in the newspaper's account.

"The president did not make remarks that have been attributed to him in the article in question," Mr Rudd to reporters..

"The purpose of my call was explicitly to discuss the role of the G20."

The Washington Post also ran a denial of the story, reporting: “A US official who monitored the call denied that Bush made any such remark”.

However Australia's opposition Liberal party has leapt on the reports, claiming it could damage Australia's ties with the US.

Malcolm Turnbull, the leader of the Liberal party, described the situation as a “remarkable diplomatic gaffe” and called for Mr Rudd to apologise for embarrassing the American president.

Alexander Downer, the former Foreign Minister who served in John Howard's government, called for an investigation into the alleged leak, saying it could damage relations between the two countries

Mr Turnbull accused the Labour party of leaking the conversation to "make Mr Rudd look particularly knowledgeable." He said the leak was also designed "to embarrass the United States, and in particular the President."

“Now this has caused considerable offence in Washington. It has undermined the reputation of Australia as a country with which other nations can have confidential discussions, and it really is something that should be investigated,” Mr Turnbull said.

In response, Mr Rudd accused the Liberal party of "continued and sustained attacks" on Barack Obama which destroyed the credibility of its "manufactured concern" over the leaked remarks.

He said it was the Liberal party that should apologise for remarks made by Mr Howard last year to the effect that a victory for Senator Obama would be a victory for al-Qaeda.

"My call on Mr Turnbull and the Liberal Party is to apologise to Senator Obama for those remarks, for those statements," Mr Rudd said.

The G20, a grouping of the world's largest industrialised and emerging economies, will meet in Washington on November 15, at Mr Bush's invitation, to discuss the financial crisis. Mr Rudd is expected to attend.

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