Labor Senator Doug Cameron has accused Daily Telegraph editor Paul Whittaker of beating up a fake front page story on Kevin Rudd’s return to the leadership to distract from claims he used Australian lives as bargaining chips in an anti-terror raid.

Today’s Tele screamed that unnamed “Labor powerbrokers” were plotting a “November coup” to knife Julia Gillard and re-install Rudd as PM and that Gillard had been briefing “key affiliated union officials” to extinguish the putsch.

It appeared online just hours after AFP Chief Tony Negus told the Melbourne Magistrates’ Court that the “reprehensible” Whittaker asked “how many lives?” would be lost if The Australian — then edited by Whittaker — decided to publish a 2009 Cameron Stewart scoop on Somali terrorists. The mop-haired editor later issued a statement denying he had ever used those words.

Cameron told Crikey this morning that he smelled a rat.

“I don’t have a lot respect for Paul Whittaker,” he said.

“Obviously when you make a mistake the obvious thing you do is to try and create another false crisis — this story must have concocted over a long boozy dinner last night because it’s got absolutely no credibility and News Limited has once again shown itself to be a total disgrace.”

Bylined Tele journalists Simon Benson and Steve Lewis relied on “key backers”, “Labor figures” and “senior sources within the NSW Right” to source the curious yarn, which appeared at a strange time given the general consensus Gillard had enjoyed her best week in months by facing down Qantas before jetting off to the G20.

It is sure to sour relations further between the Prime Minister’s Office and News, who are at loggerheads over a media inquiry headed by retired judge Ray Finkelstein and respected journalism academic Matthew Ricketson.

A bullish Cameron said he would immediately start agitating inside caucus to widen the terms of reference of the inquiry to include the inner workings of the media giant, which controls 70% of the Australian daily newspaper market.

The Daily Telegraph is its second-highest selling weekday masthead behind the Herald Sun with a Monday-Friday circulation of 355,000.

“I think that the Murdoch press are an absolute joke and I am now convinced that the government should widen its inquiry. The Australian public deserve better in particular from a newspaper that claims to be the voice of working people.

“I am convinced that the problems with Murdoch at the very top have permeated through to the Australian newspapers and in the interest of democracy we should look into their specific operations.

“We need a newspaper industry that can deal that can inform people, and not simply be an operation that sets out to destabilise and destroy,” he said.

Simon Benson rejected those comments, telling Crikey that Cameron’s suggestion was “the most irrational and ludicrous thing I’ve heard a politician ever say”.

“He’s obviously said it to distract from his own party’s leadership problems — he seems to be the only one that’s unaware of them,” the senior scribe said, adding that the Telegraph wasn’t the only media outlet to have recently run with musings on leadership speculation.

The story’s other author, the Canberra-based Steve Lewis, declined to comment, referring all queries to Whittaker.

Whittaker echoed Benson’s comments, adding that “Cameron’s colleagues aren’t including him in their discussions about Gillard”s future reflects on him not us.”

This morning the duo’s paper revelled in its historic role covering the leadership crisis, including a helpful breakout box of recent front pages with the memorable headlines “Kiss of death”, “Lazarudd”, “Julia clips Kevin’s wings” and “Rudd’s humble pie”.

Cameron’s caucus colleagues joined in the Tele pasting, with Nicola Roxon telling Fran Kelly that the “ludicrous” story was “just ridiculous” and that “either the media or a few disaffected people” were trying to cause trouble. Later, Fairfax doyenne Michelle Grattan noted the yarn had emerged at a strange time, despite the scratchy oxygen snatched by Rudd at last week’s CHOGM conference prior to a concert from hip hop stars Bliss N Eso.

The Melbourne Magistrates’ Court committal hearing of Victorian Police officer Simon Artz that sparked the fracas continues today. Overnight, other Murdoch outlets were putting offering their own take on yesterday’s proceedings, with one-time Australian Victorian news editor Chip Le Grand explaining that Whittaker’s “lives” comment “should not be taken at face value”.