The Foreign Office has denied reports that David Lammy refused to pay a taxi driver who drove him and his wife from Italy to France.

An anonymous taxi driver told French media the foreign secretary became “aggressive” when he was asked to pay 700 euros (£590) of the 1,550 euro bill, with the remainder covered by the booking service.

But the government department said Mr Lammy and his spouse were in fact victims in the case and that the driver has been charged with theft after driving off with their luggage.

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The incident happened when Mr Lammy, the Labour MP for Tottenham, joined the King for a state visit to Italy in April and then took a private holiday to the Alps with his wife Nicola Green.

The taxi driver took the couple more than 600 kilometres from the town of Forli in Italy to the French ski resort of Flaine.

A source said the fee was paid up front to the transfer service but that the driver nevertheless insisted he was owed money and demanded to be paid in cash.

Ms Green, who was speaking to the driver while Mr Lammy went into the house, told police in a statement that she felt threatened and that the taxi driver had showed her a knife in his glovebox according to the PA news agency.

It is understood that after he left with their luggage, a member of the foreign secretary’s office contacted the driver to get it back, and it was deposited at a police station with a “considerable” sum of money missing from Ms Green’s bag.

The anonymous driver told French newspaper La Provence he was “the victim of assault and violence by members of a British embassy during an international transfer where they refused to pay me”.

He said he had decided to leave the passengers at their destination and went to the police, where officers found diplomatic passports and a coded briefcase in the boot of his car.

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Ms Green does not have a diplomatic passport and Mr Lammy was travelling on his normal passport as it was a private trip.

Whitehall sources denied any sensitive material was in the holiday luggage.

Prosecutors opened an investigation into a “commercial dispute” in Bonneville in Haute-Savoie after the driver filed a complaint, according to French media.

A Foreign Office spokesperson said: “We totally refute these allegations. The fare was paid in full.

“The foreign secretary and his wife are named as victims in this matter and the driver has been charged with theft.

“As there is an ongoing legal process, it would be inappropriate to comment further.”