The paper's former royal editor Clive Goodman was "furious" and fell out with then managing editor Stuart Kuttner over the incident in 1992, the hacking trial was told at the Old Bailey, London.
Mr Goodman's lawyer David Spens, QC, accused Mr Kuttner of leaking the story to a rival paper while cross-examining him in the witness box.
Mr Kuttner denied it and said he had no memory of asking Mr Goodman to help a journalist friend with background information for a book to match one Andrew Morton was writing about the princess.
Mr Spens said after Mr Kuttner persisted, Mr Goodman told him a rumour about Diana receiving an emergency visit by a private doctor was "impossible to prove".
Mr Spens told Mr Kuttner: "That very story you knew was not true but made up as an example of what might be in Mr Morton's book actually appeared as fact in a newspaper to plug his book."
Mr Kuttner said: "I do not remember any of that."
Mr Spens asserted: "Mr Goodman was furious with you and had a row with you that you had leaked what he told you." Mr Kuttner replied: "If the accusation is I leaked information, it's completely untrue and entirely false. I did not then or any time leak information."
The QC asked Mr Kuttner about his earlier assessment of Mr Goodman, saying he had not been "remotely complimentary" in his evidence.
Mr Kuttner said he harboured no animosity towards his co-defendant and former colleague, but added: "I found his performance in later years disappointing."
Mr Kuttner, of Essex, along with the paper's former editors Rebekah Brooks and Andy Coulson, denies con- spiring with others to hack phones between 2000 and 2009.
Mr Goodman had previously admitted hacking in 2006 but denies conspiring to commit misconduct in public office by paying officials for stories.
The trial continues.