Bob Stewart said the claims by his uncle, who was at school near Loch Ness, were in all the Scottish newspapers and led to a huge expansion in tourism.
SNP MP Drew Hendry joked that it was “a scurrilous attack on what is quite clearly one of my constituents”.
The exchange began when Mr Hendry was outlining the growth of tourism in his Highlands constituency, saying: “Why wouldn’t you, Mr Speaker, want to come to Inverness, Nairn, Badenoch and Strathspey?
“To enjoy the snow sports in the Cairngorms, perhaps, or golfing in Nairn, or go on a cruise along Loch Ness with Jacobite cruises.”
Beckenham MP Mr Stewart later intervened, saying: “I want to help him by saying my uncle, who was at school on the edges of Loch Ness as a boy, saw the Loch Ness monster.
“In consequence, tourism expanded hugely. It was in all the Scottish newspapers.
“And only at his funeral did he allow it that he was a fake.”
Mr Hendry then joked: “I was initially grateful for his intervention, but that’s a scurrilous attack on what is quite clearly one of my constituents.
“I will not have it. I hope he will withdraw later on.”
Mr Stewart offered further clarity on the story at the end of the debate.
Government whip Paul Maynard, summing up, said: “Back to Inverness, I will have to pay a visit if only to hunt for Nessy. I’ve now been inspired by (Mr Stewart).”
Mr Stewart intervened, saying: “For the sake of clarity, my uncle ... was at prep school alongside Loch Ness in 1931 when he was late back to school and he and another boy claimed they were watching the Loch Ness monster. This grew big: Scotsman, lots of pictures and he was stuck with this.
“And it was only at my great uncle’s funeral that he allowed his son to declare that actually he hadn’t seen the Loch Ness monster all those years ago as a boy.
“But I want to say to (Mr Maynard): I believe there is a Loch Ness monster.”