David Cameron has told MPs he has seen "no evidence" that Culture Secretary Jeremy Hunt acted improperly in handling News Corp's proposed takeover of the broadcaster BSkyB.
Labour wants the prime minister to order an inquiry into whether Mr Hunt broke the ministerial code.
But, in response to an "urgent question", he said this was "not necessary or right".
Speaker John Bercow granted the question following Labour's request.
The opposition says Mr Cameron's independent adviser on ministerial interests - Sir Alex Allan - should investigate whether Mr Hunt's contacts with Rupert Murdoch's News Corp were too close during consideration of the company's attempt to take over BSkyB.
The bid was dropped last year amid anger about phone hacking at the News of the World newspaper, owned by News Corp's UK arm, meaning no decision had to be taken by the government.
In the Commons Mr Cameron argued that he wanted to hear Mr Hunt's evidence to the Leveson Inquiry on press standards before deciding whether to hold an inquiry into his conduct.
During raucous scenes, he told MPs: "He acted fairly and impartially and in line with the advice of his permanent secretary.
"I have seen no evidence to suggest that, in handling this issue, the Secretary of State acted at any stage in a way that was contrary to the ministerial code."
Mr Cameron said he had consulted Cabinet Secretary Sir Jeremy Heywood and decided it was right to allow Lord Justice Leveson to conduct his inquiry and not to set up a "parallel process" to establish the facts.
He added: "What we have is a judge-led inquiry, witnesses required to give evidence on oath, full access to papers and records, cross-examination by barristers, all live on television.
"There is nothing this tough or this rigorous the Civil Service or the independent adviser could provide."
The prime minister accused Labour of "playing one-sided party politics" with the issue and of having "self-serving double standards".
Labour's urgent question, tabled by leader Ed Miliband, asked whether the prime minister "will refer the conduct of the Secretary of State for Culture, Olympics, Media and Sport in respect of his dealings with News Corporation to the Independent Adviser on ministerial interests".
In the Commons, Mr Miliband said: "The culture secretary is in clear breach of the ministerial code... it matters because we need a government that stands up for families, not the rich and famous."
He added: "The prime minister is defending the indefensible and he knows it."
Mr Hunt's former special adviser Adam Smith, who quit last week, "had to go to protect the culture secretary", Mr Miliband said.
But he added: "The culture secretary has to stay to protect the prime minister."
Responsibility for ruling on the BSkyB takeover bid in a "quasi-judicial" manner was given to Mr Hunt in 2010.
Last week the Leveson Inquiry published emails between his adviser and News Corporation's head of public affairs, Frederic Michel, about the company's efforts to take over the 61% of the broadcaster it did not already own.
Mr Hunt has denied Labour claims that the emails show the firm had a "back channel" of influence to his office, but Mr Smith quit last week, saying the extent of contact went too far and had not been authorised by Mr Hunt.
Labour says the culture secretary should go too.
It has also accused him of misleading Parliament about whether he had published all exchanges between his department and News Corporation, part of Rupert Murdoch's media empire.
Mr Hunt has promised to disclose private texts and emails between him and Mr Smith to the Leveson Inquiry, to which he will give evidence next month.
A source close to the culture secretary told the BBC it was wrong for his conduct to be questioned again in the Commons a few days after he issued a statement on his role in the BSkyB takeover bid.
They added: "The Speaker is rotten with bias. He should not be Speaker."
The Speaker's office declined to comment on the remarks.