The sale of Australia's state-owned telecoms giant Telstra has descended into further controversy after the government announced an investigation into claims the company misled parliament and the courts.

On Sunday the Australian newspaper and the Nine Network television station reported the allegations and claimed the company had also tapped the phones of disgruntled customers.

Royal Commission

The most intensive and expensive form of inquiry that can be established by an Australian government. It cannot pass judgement on a case but its findings result in legal action.

Communications Minister Richard Alston reportedly described the allegations as raising "very serious concerns" but brushed aside calls for a Royal Commission of inquiry.

He has instead instructed the industry regulator, the Australian Communications Authority (ACA), to investigate.

Telstra rejected the allegations as "misleading and based on false premises".

Chief executive Ziggy Switkowski said: "Telstra will fully co-operate with the ACA. Telstra has nothing to hide."

The government is trying to sell its remaining 50.1% stake in Telstra, after two earlier privatisations, for about A$30bn (�10.7bn; $16.5bn) to pay off its debts.

Consumer complaints

According to the newspaper report, the allegations relate to the handling of complaints from a group of small business customers calling themselves Casualties of Telstra (COT).

The group based in the north-eastern city of Brisbane claims poor Telstra service ruined their businesses.

The company is accused of misleading parliament and Victoria's Supreme Court over how it settled the decade-old dispute.

This latest controversy comes before the publication on Friday of a report on the service the company provides to rural and urban areas.

If the report shows serious disparity, the government may have to shelve the sale.

Telstra shares rose 0.04 cents to A$4.79 on speculation the sale may be delayed.