The fallout from the war of Mr Byers' feuding spin doctors continues to hang over Whitehall after the department issued a statement saying Martin Sixsmith had not resigned.
Mr Byers now stands accused of misleading Parliament when he told the House of Commons the former BBC reporter had quit, in the wake of a row with Jo Moore, on 15 February.
Ms Moore infamously suggested, as the 11 September terrorist attacks unfolded, it would be a good day to bury bad news.
No details of any financial settlement were divulged but a figure of£200,000 has been reported.
Shadow transport secretary Theresa May said: 'Stephen Byers must now come to the House of Commons and answer allegations that he misled MPs and spell out the cost of the compensation package offered to Mr Sixsmith.'
Prime minister Tony Blair's official spokesman backed Mr Byers, saying: 'It turned out that the understanding was based on an incorrect understanding of the earlier discussions.'