Prince Andrew was accused of groping a woman at Jeffrey Epstein's US home, according to newly released court papers.
The accusation is contained in documents from a 2015 defamation case, released by a judge on Friday.
Buckingham Palace said on Saturday this related to US proceedings "to which the Duke Of York is not a party".
"Any suggestion of impropriety with underage minors is categorically untrue."
The court papers were released on Friday, a day before wealthy US financier Epstein was found dead in his prison cell while awaiting trial on sex trafficking charges.
Contained in the defamation case papers is an allegation by a woman called Johanna Sjoberg that Prince Andrew touched her breast while they sat on a couch in Epstein's Manhattan apartment in 2001.
She recalled in the documents: "I just remember someone suggesting a photo, and they told us to go get on the couch. And so Andrew and Virginia sat on the couch, and they put the puppet, the puppet on her lap.
"And so then I sat on Andrew's lap, and I believe on my own volition, and they took the puppet's hands and put it on Virginia's breast, and so Andrew put his on mine."
The papers relate to a defamation case brought by Virginia Giuffre, an alleged victim of Epstein, against socialite Ghislaine Maxwell.
Ms Maxwell was alleged to have procured underage girls for her then-boyfriend Epstein and his wealthy friends, but she has always denied the allegations.
Ms Giuffre subsequently sued Ms Maxwell for defamation after the media heiress claimed she was a liar.
Ms Giuffre had also claimed she was forced into a sexual encounter with the Duke of York.
But in 2015, Buckingham Palace denied this allegation, saying then that "any suggestion of impropriety with underage minors" by the duke was "categorically untrue".