Glenn Milne has egg all over his face after the re-hired columnist filed an error-filled op-ed reviving discredited allegations that Prime Minister Julia Gillard had somehow been an accomplice to her one-time partner Bruce Wilson’s alleged fraud.

The piece rehashed 16-year-old claims — vociferously denied by the Prime Minister whenever they are dredged up — suggesting Gillard had lived in a house with Wilson bought using illegal cash.

Milne had previously written about the saga in 2007. But this morning the Walkleys brawler went further, stating that “Gillard shared a home in Fitzroy bought by Wilson using the embezzled funds.”

Crikey understands that this sentence, removed by News Limited lawyers four years ago, is false.

Now, the entire piece has been deleted from The Australian‘s website, with the newspaper forced to issue a grovelling apology acknowledging that the “assertions are untrue”. Damningly, Milne had failed to ring the PM’s office for comment.

The Australian’s editor, Clive Mathieson, issued the following statement to Crikey this morning: “We’re investigating the Prime Minister’s claim of inaccuracies in the story. As the correction points out, we regret that the PM was not given any chance to respond to the allegations.”

Asked whether Milne would be sacked, Mathieson said “he remains a contributor to The Australian.”

But while the article has been removed, the line continues to fester on fellow News Limited columnist Andrew Bolt’s blog. Interestingly, Bolt has written the following disclaimer directly after it:

“I am not sure that Gillard did share a home with Wilson. My own understanding is that she maintained her own house.”

Late this morning, the Ten Network talk show host issued an “update”, acknowledging The Oz had pulled the story.

While a popular topic in the right wing blogosphere, the allegations are rarely taken seriously by professional journalists.

The fresh outbreak was three days in the making. Bolt had first blogged about the saga on Saturday, publishing part of a statutory declaration by embittered ex- Australian Workers Union Victorian vice president Bob Kernohan that was quoted by Milne. “It could be the last straw for Gillard’s leadership,” Bolt hypothesised.

The yarn had gathered steam a day earlier when 2UE afternoons jock Michael Smith said on air that he had been contacted by “a number of listeners” who had dredged up the Kernohan claims — first aired under privilege by Phil Gude in the Victorian parliament in 1995 and then again in 2001 by Liberal MP turned lobbyist Geoff Leigh.

Leigh told parliament that former AWU state secretary (and future jet-setting MP) Bob Smith had told Kernohan that Wilson had “spent $17,000 of women’s clothing for Gillian (sic) Gillard out of union funds” while Gillard was John Brumby’s chief-of-staff.

Kernohan’s story goes that during her time as a partner at Slater & Gordon, Gillard set up the association Wilson used as WA state secretary to allegedly funnel cash from employers. In a new statutory declaration made last year, he says two houses — one owned by Wilson in Fitzroy and another by the PM — had been bought or renovated using dirty funds.

Despite the usual legal disclaimers, 2UE’s Smith lapped it up to opine that “much of this comes to the heart of the judgement of the lady who runs the country.”

The factional motivation for the leaks has gone mostly unnoticed.

Bob Kernohan was in office when elements of the left took control of the old Victorian AWU in 1989. He has been at war with his internal AWU enemies ever since, alleging financial fraud in 1992 and in 1995 lobbed a kamikaze bid to unseat Bill Ludwig as the union’s national president.

Bruce Wilson was a former ally of Ludwig and former national secretary Ian Cambridge, but was dumped after the financial irregularities emerged. National Crime Authority and fraud squad investigations were initiated but there were never any adverse findings and Wilson never returned any money. On 2UE this afternoon, Kernohan said he was offered a seat in parliament — presumably by forces loyal to Ludwig — if he stayed silent.

The weak Gillard link has been doing the rounds among the PM’s enemies for years. In 2006, Kim Beazley supporters revived them when they thought she was hatching a deal to knife him as opposition leader.

And in 2007, The Age‘s Jason Koutsoukis wrote that he had been summoned to a meeting with a figure who had presented him with a disappointing file that included a “well-worn tirade aired in the Victorian parliament last century.”

It’s worth quoting these lines:

“The one skeleton in Gillard’s closet is the allegation — first raised under parliamentary privilege in 1995 by former Kennett minister Phil Gude — that Gillard’s one-time partner Bruce Wilson, a former secretary of the Australian Workers’ Union, was under investigation by the National Crime Authority and Victoria Police over the misappropriation of union funds.

“According to Gude, the union funds were used to renovate Gillard’s house and buy her some personal items.

“Gillard has repeatedly dismissed the allegations as being totally untrue and those who repeat them as ‘lying cowards’.

On Friday, 2UE’s Smith said one of the reasons for the rehash was that Gillard had said (to Milne in 2007) that she was “young and naive”. In fact, the PM has consistently shot down the suggestions with supreme force each time they get trotted out.

On Australian Story in 2006, she stated point blank that the suggestions were “absolutely untrue…of course I was angry and anybody whose subject to those sort of allegations under the privilege of Parliament, you are going to be angry and you don’t get a fair go in responding…so once the allegations are out there they are going to be reported and that might lead some people even though you have denied them to think that there’s something in them, so I was yeah you know angry but nothing you can do about it except sort of just issue the denials and move on.”

There were a number of other factual howlers in Milne’s article. He referred to the Health Services Union as the “Hospital Services Union”, made a hash of the HSU’s Victorian factional dynamic (Jeff and Kathy Jackson were hardly friendly with Craig Thomson) and got hopelessly confused over the separation between the national office and the HSU’s former No. 1 Victorian branch.

On 2UE early this afternoon, the key portions of a promised pre-recorded interview with Kernohan failed to proceed on legal grounds. Hilariously, Michael Smith said that his talent had been moved to a “safe location”.