Prime Minister Julia Gillard, who deposed Rudd in a shock party coup five weeks ago before calling an August 21 election, lambasted the opposition over the ''disgraceful'' claims.
"While Kevin is in hospital recovering from an operation, here is the Liberal Party, out there with a disgraceful political attack," the Labour Party leader told reporters in Sydney after Rudd had gallbladder surgery Friday.
Gillard's furious reaction came after the 'Sunday Telegraph' quoted ex-Liberal foreign minister Alexander Downer as saying his party "mercilessly" used then backbencher Rudd a decade ago to leak information to the media.
The row is the latest controversy to overshadow Gillard's campaign to be elected as Australia's first woman prime minister in her own right and comes after a new opinion poll showed her headed for defeat.
Rudd, who has denied being behind any leaks, immediately hit back at the claims by his former arch-political enemy Downer."These are serious allegations... they are completely and utterly false," a spokesman for the former leader said.
"Mr Rudd is taking legal advice with a view to initiating legal proceedings on this matter."
The newspaper quoted Downer as saying the erstwhile Liberal government manipulated Rudd into passing on information damaging to Labor's then foreign affairs spokesman Laurie Brereton, whom Rudd later replaced.
"We used him mercilessly to embarrass Brereton," it quoted Downer as saying.
Downer issued a statement saying his comments had been "misinterpreted".
"Kevin Rudd was not used by me or other members of the Liberal Party as a so-called 'double agent' to leak material against other members of the Labour Party," he said.