The head of the BBC admitted on Saturday it faced a 'crisis of trust' after its flagship news programme wrongly implicated a British politician in child sex abuse, just weeks after the Jimmy Savile scandal broke.

Britain's public broadcaster has suspended all investigations by its current affairs programme Newsnight following the report that Director-General George Entwistle has condemned as 'fundamentally wrong'.

Newsnight was already under scrutiny for dropping an investigation last year into abuse claims against the late Savile, one of the BBC's biggest stars who has now been accused of sexually abusing hundreds of children over four decades.

Last week, Newsnight reported allegations by a man, Steve Messham, that he had been repeatedly abused by a senior Conservative party figure from the 1980s when he was a teenager living in the Bryn Estyn children's home in Wales.

Although the programme did not identify the politician, it sparked a frenzy of speculation leading to former Tory party treasurer Alistair McAlpine, an aide to Margaret Thatcher, being widely named on social networking sites.

McAlpine went public on Friday to strongly deny the claims, and hours later Messham said after seeing a photograph of McAlpine that he had been mistaken.

Messham offered his 'sincere and humble' apologies to McAlpine and suggested in a statement on Friday that it was the police who wrongly identified the politician as his alleged abuser back in the early 1990s.

"We should not have put out a film that was so fundamentally wrong," the BBC director-general said on Saturday. "What happened here is completely unacceptable. In my view the film should not have gone out."

In a BBC radio interview, Entwistle said he had not been aware of the programme until it aired, but said it had been signed off by lawyers and senior management.

He confirmed that he has suspended all Newsnight investigations and has asked for a review into what had happened to be on his desk by Sunday.

Closing Friday's edition of the programme, anchor Eddie Mair summed up the grim mood with the sign-off: "Newsnight will be back on Monday. Probably."

Entwistle said it would be "absolutely disproportionate" to consider closing down the 32-year-old programme.

But he admitted the damage the row has caused the corporation on the heels of the scandal surrounding Savile, which is currently the focus of three BBC-commissioned inquiries and a major police investigation. "This is a bad crisis of trust," Entwistle said.

He added: "It would be absolutely wrong to slur by extension the rest of the amazing work that is going on across the rest of BBC News."

The British press described the BBC as being in "chaos", and one commentator for The Guardian newspaper wrote: "The latest error could not be much more serious for the BBC's journalistic reputation."

The broadcaster said on Friday it was suspending all co-productions with the Bureau of Investigative Journalism, with which it worked on the programme into the children's home abuse.

Lawyers for McAlpine meanwhile said they would be pursuing legal action against "all media who have defamed Lord McAlpine's reputation and published defamatory statements".

The politician, who blasted the claims as "wholly false and seriously defamatory", said he was forced to publicly deny them after he was named directly on the Internet and "by innuendo" in the print and broadcast media.

He said he had never been to any children's home, let alone the Bryn Estyn facility in Wrexham, north Wales. "I did not sexually abuse Mr Messham or any other residents of the children's home in Wrexham," he said in a statement.

In his statement Messham said after seeing the politician's picture, "this is not the person I identified by photograph presented to me by the police in the early 1990s, who told me the man in the photograph was Lord McAlpine," he said.