Opposition members had accused Mr Aiyar of collecting money for the Chinese during the 1962 invasion.
“There is a vicious campaign being carried out to defame me by saying I raised money for the Chinese during 1962 when I studied at Cambridge. It is a total lie, baseless, defamatory and mischievous,” he said.
“Why would Mr Vajpayee post a traitor to such a sensitive posting” he asked.
He said the allegations against him were based on “a lie” in the British magazine Private Eye, written by journalist Dhiren Bhagat in May, 1986.