Labour MP Andy McDonald says he wants Parliament to guarantee that taxpayer money will not be used to cover Prince Andrew's settlement with Virginia Giuffre.
The Duke of York has agreed to pay a reported £12 million in the out-of-court agreement after Ms Guiffre sued him for sexual abuse.
She alleges she was trafficked to the royal by his acquaintance and convicted sex offender Jeffery Epstein.
Andrew maintains innocence and denies the accusations made against him, the Mirror reports.
The explosive scandal, which has left the Prince's reputation in ruins, could cause further damage to the royal family if there is a publicly held perception that he has dodged any financial burden, lawyer Mark Stephens stated.
Labour's McDonald said he is going to raise the issue when MPs return to Westminster next week following their half-term break.
"This is a person of very high profile involved in a case where his position of authority and privilege has been allegedly abused and it is an enormous sum of money," he told BBC's Newsnight.
"We don't know the precise figure but there is a risk that this will be at the public's expense so we need to have that resolved. We need to know exactly where this money is coming from.
"I am going to take the opportunity to raise this issue in Parliament because the issue isn't going to go away until people have that information and receive assurances that public money is not going to be used to in any way contribute to the settlement."
Andrew had said he wanted a jury trial to contest the allegations in court, but he has opted to reach a settlement with Ms Giuffre and now "regrets his association" with disgraced financier Epstein, a letter submitted to the United States District Court stated.
Andrew agreed to make a "substantial donation" to his accuser's charity after the pair came to the undisclosed out-of-court settlement.
Mr Stephens, an international reputation lawyer from the firm Howard Kennedy, said the duke will have to give details of where the settlement money is from or risk more "reputational damage" to the monarchy.
He said: "I think there's equal concern that it comes from the royal family and what they want to see is that Andrew is paying out of his own pocket - that he's personally being financially punished here.
"And I think he's going to have to clarify within the next 24 to 48 hours from his team, that it's come from his own private resources or will do."
Although the parties have settled the case, the agreement is not an admission of guilt and he has always strenuously denied the allegations against him.
No detail has been disclosed with regard to the settlement and costs, but it has been reported he has agreed to pay around £10 million to Ms Giuffre and a further £2 million to her charity, with speculation the Queen might help with costs from her private funds.
Andrew is reportedly in the process of selling his Swiss ski chalet with the property expected to generate millions in funds.
The public, and not a jury, will now decide "who they believe" after the settlement which ended the prospect of an autumn trial in the civil case, said Gloria Allred, a US lawyer who represented several of Epstein's victims.
Speaking to BBC Radio 4's Today programme, Ms Allred said: "This case will be dismissed, then each will go their own way and he will never end up testifying under oath, at least not in this case, and the public will just have to decide who they believe."
Ms Giuffre made a claim against Andrew for damages in her home country of the US, claiming she was trafficked by Epstein to have sex with the royal when she was 17, a minor under US law.
The settlement agreement states that Andrew will donate to Ms Giuffre's charity in support of victims' rights and that he has pledged to "demonstrate his regret for his association with Epstein" by supporting the "fight against the evils of sex trafficking, and by supporting its victims".
Last month, the Queen stripped Andrew of his remaining patronages and honorary military roles as the monarchy distanced itself from the duke ahead of potentially damaging developments in his lawsuit.
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