Melbourne (PTI): Prime Minister Kevin Rudd, avoiding any comment on the sex scandal involving a Bollywood star Tania Zaetta and Australian troops in Afghanistan, today said the entertainer was free sue the defence department.

"Zaetta was entitled to exercise her legal rights by suing the defence department," Rudd said.

"The defence department has apologised in terms of their handling of this particular document," Rudd was quoted as saying by "The Australian" on Friday.

"There is a full defence investigation under way in relation to two matters - what transpired there (Afghanistan) and, secondly, on the question of the actual handling of this document," he said, adding let's wait until all the facts are on the table.

Meanwhile, Zaetta, who has worked in Bollywood movie 'Mr Black, Mr White', angrily denied the claims describing them as "complete made-up lies".

According to "Herald Sun", Zaetta has confessed that she slept in the same tent as men while touring Afghanistan, but denied her involvement in a military sex scandal.

Now, the Federal Government faces a potential compensation payout to Zaetta after naming her at the centre of the sex-scandal investigation that has rocked the Defence Force, the newspaper said.

The actor, last night, said she had briefed lawyers strongly denying unsubstantiated allegations that she had sex with Australian soldiers during a 17-day concert tour in the Middle-East last month.