Karl Turner is alleged to have touched the party member's bottom in his constituency office in 2015, according to the Financial Times.
Anonymous witnesses told the newspaper the Kingston upon Hull East MP said to the woman, who had had a double mastectomy, that she "shouldn't have got rid of her real tits because they were great".
Labour insisted it takes all complaints about inappropriate behaviour "extremely seriously" and appealed for anyone with a complaint to contact the party to allow allegations to be fully investigated.
After the alleged bottom-slapping incident, Mr Turner reportedly said something like "I couldn't help myself" when he was challenged.
The shadow transport minister allegedly followed up his comments about the woman's mastectomy by adding: "The ones you've got now are nice enough."
Mr Turner said: "I am aware of reports in the media about my alleged inappropriate behaviour.
"I strongly reject any suggestion that I behaved inappropriately or in a misogynistic manner."
A Labour spokesman said: "The party takes all complaints of sexual harassment, abuse and discrimination extremely seriously.
"We ask that anyone with a complaint comes forward so that allegations can be fully investigated, and any appropriate disciplinary action taken in line with the party's rule book and procedures."