Mr Blair launched a bitter attack on the Tory leader, accusing him of a severe lack of judgment.
He told Mr Howard: "Yesterday was a test of policy for you and you failed it. Today is a test of character, and you have failed that too.
"What you should understand is that being nasty is not the same as being effective. Opportunism is not the same as leadership."
Mr Howard was hissed by Labour backbenchers throughout his speech and booed as he sat down in some of the angriest scenes the Commons has witnessed since Labour came to power.
Struggling to keep order, the Speaker, Michael Martin, even threatened to suspend the sitting and expel MPs from the chamber after repeatedly calling for silence.
Robert Jackson, the Kelly family's MP, said he did not believe the disclosure of Dr Kelly's name, which he knew to be "inevitable and inescapable", had contributed to the scientist's death.
"The BBC has admitted that Mr Gilligan's broadcast was wrong. Lord Hutton has concluded that the BBC did not exercise proper journalistic control. Does the Prime Minister agree with me that if Mr Gilligan had not felt encouraged to make the gravest allegations as a matter of routine, my constituent Dr Kelly would still be alive today?"
Mr Blair replied: "I agree with what you said at the conclusion of your question. I think what is important is there is a reflection on how such allegations come to be routinely made. There is absolutely no need for it."
Labour MPs lined up to criticise standards of reporting inside the BBC, after Mr Blair said question's about the regulation of the corporation would be considered as part of the review of the BBC's Charter.
The Prime Minister defended his record and called for attacks on the Defence Secretary Geoff Hoon and senior Ministry of Defence officials to cease.
But he saved his fiercest rhetoric for the Conservative leader Michael Howard amid furious scenes in the Commons Chamber.
Mr Blair was cheered by Labour backbenchers in the packed House of Commons as he stood to deliver his 22-minute statement.
He told MPs the issues raised by the Hutton Inquiry "go to the heart of the integrity of government, our intelligence services and me personally as Prime Minister."
He attacked the BBC and its report on May 29 that the Government inserted its dossier claim that Saddam Hussein could deploy chemical or biological weapons within 45 minutes probably knowing it was wrong.
He added: "The allegation that I or anyone else lied to this House or deliberately misled the country by falsifying intelligence on weapons of mass destruction is itself the real lie. And I simply ask that those that made it and those who have repeated it over all these months now withdraw it, fully, openly and clearly."
He insisted that the Ministry of Defence did not act improperly in confirming Dr Kelly's name, and demanded an end to attacks on Mr Hoon and Sir Kevin Tebbit, permanent secretary at the MoD.
He said: "Both are cleared of any allegations of impropriety. My Right Honourable Friend [Mr Hoon] in particular has been subject to a constant barrage of such claims as parts of the media have alternated between wanting his scalp or mine. I hope that these attacks on him over this issue also cease."
Labour MPs cheered as Mr Blair twice repeated Lord Hutton's words in a direct challenge to Mr Howard.
He said: "Let me repeat the words of Lord Hutton: 'False accusations of fact impugning the integrity of others...should not be made. Let those that made them now withdraw them.'"
Mr Howard claimed that Lord Hutton's conclusion that John Scarlett, chairman of the JIC may have been "subconsciously influenced" by Mr Blair's desire for a strong dossier was evidence that the dossier was "on one level sexed up".
He said: "Is that not a very serious finding indeed? Does it not go to the heart of the reliance which can be placed on any public intelligence material in the future, at least while you remain Prime Minister?"
The Tory leader also renewed his criticism of Mr Blair for chairing the Downing Street meeting that decided to issue a press release saying that a civil servant had come forward as the possible source of the BBC's allegations.
He asked Mr Blair: "Were you the only person who thought that issuing that press release would not lead to the naming of David Kelly? Is that what you're asking us to believe? Are you really that naive?
"Isn't it clear to everyone that the release of the statement authorised by the Prime Minister led inevitably to the naming of David Kelly? Are you really telling us you had no idea that would happen?"
Mr Howard declared: "Isn't there the starkest contrast between David Kelly - the dedicated scientist and weapons inspector who had done so much for our country - and the cabal of ministers and advisers who were so obsessed with their war with the BBC that they gave scant attention to his welfare?
"Isn't there the starkest contrast between the hours and the days they spent working out different ways of releasing his name to the media with the two-and-a-half minutes that they spent informing him of the consequences of their actions?"
But Mr Blair replied: "Actually I didn't expect the right honourable gentleman to respond to this in a measured and sensible way. It is a severe lack of judgment that he didn't. The fact of the matter is, as he knows perfectly well, that allegations of impropriety of dishonesty have been found to be not true ... he might have had the decency therefore to come to this dispatch box and withdraw the allegations he made..."
Charles Kennedy, the Liberal Democrat leader, said: "The report necessarily leaves unanswered the most fundamental question of all and that question is of course, the basis upon which this country went to that war in Iraq.
"Was there an adequate justification for the Government to seek endorsement of the House of Commons on the basis which it did for our forces to go to war in Iraq without the express approval of the United Nations?
"In the absence of the discovery of weapons of mass destruction, surely as things stand today the decision and the judgment on that one would have to be no."
Donald Anderson, the chairman of the Foreign Affairs Select Committee, which cross-examined Dr Kelly days before his suicide, condemned Mr Howard for "scratching around for minor qualifications in a report which on any objective analysis exonerates the Prime Minister and undermines those who for many months have impugned his integrity".
Ann Taylor, the Labour chairman of the Commons Intelligence and Security Committee, said the findings paralleled her own committee's finding that the controversial dossier of September 2002 was not "sexed up".
She added: "The public will set more store by the judgments of Lord Hutton than the wriggling comments of the Leader of the Opposition."
Gerald Kaufman, chairman of the Culture, Media and Sport select committee was cheered by Labour MPs as he demanded a series of heads roll at senior levels of the BBC.
He argued that the Hutton report confirmed "what some of us have been reviled for saying for months - namely that the BBC broadcast a lie, that the chairman of the BBC railroaded an acquiescent board of governors into endorsing the lie, that Richard Sambrook [Head of News] withheld from the board of governors information showing it was a lie, that Kevin Marsh ['Today' editor] and John Humphreys ['Today' presenter] built on the lie.
"How can the BBC continue as a public service broadcasting organisation funded by a tax unless these people are cleared out and a new regime is appointed?"
He was echoed by the veteran Tory MP, Sir Patrick Cormack, who said Lord Hutton had concluded that Dr Kelly's death was "a great personal tragedy, but not a great public scandal" and argued that those in charge of public service broadcasting should now consider resigning.
Lorna Fitzsimons, the Labour MP for Rochdale, asked the Prime Minister what the BBC governors and the media should do to put in place the "editorial systems" called for by Lord Hutton to prevent impugning the integrity of the Government and others.
Mr Blair replied: "I think it's important in all the focus there will inevitably be on the procedures of the BBC, we make it clear there is sometimes a strain of journalism - not shared by all journalists or all parts of the media at all - that is willing to make some of these accusations far too readily, and I hope that is a reflection that goes a little bit broader than the BBC."
The former minister Labour Minister, Alan Howarth, asked for assurance that "Lord Hutton's strictures against the BBC will not bias the Government in its consideration of the future of the charter and of the licence fee".
Mr Blair replied: "I can give you that assurance completely."
But Peter Bottomley, the Tory MP for Worthing West, insisted that No 10 could have "calmed the whole thing down if they had not over-reacted" to Andrew Gilligan's initial report.
Sir Teddy Taylor, the veteran Tory MP, argued that "somebody should accept some responsibility" for the Inquiry's finding that the Ministry of Defence was at fault over how Dr Kelly was informed that his name was about to become public.
Richard Shepherd, Tory MP for Aldridge-Brownhills, expressed his "very great unease about the cat and mouse process of any questions" adopted by the MoD to identify a public servant.
Alice Mahon, Labour MP for Halifax, demanded an independent inquiry into why Britain went to war with Iraq "given the weight of evidence" now that Iraq did not have WMD.
"Millions of people opposed this illegal war. Don't we owe it to our democracy and the citizens of this country to find out exactly why we went to war?" she said.
David Trimble, the Ulster Unionist leader, said the Prime Minister and Mr Hoon "can rightly feel they have been vindicated" because it was clear they had "acted quite properly" in handling the dossier.
But he called for a review of the accuracy of the intelligence material itself.
"I do not suggest there was any impropriety in it but I do think there must be lingering with us a concern about the reliability of that intelligence. We need to address how we can assure, in a future situation, the best intelligence there can be."
Mr Blair said the verdict on the intelligence should await the final report of the Iraq Survey Group which is searching for weapons.
He said: "At that point in time it will be sensible to consider what lessons can be learned."
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INDEPENDENT
Lord Hutton:
Report of the inquiry into the circumstances surrounding the death of Dr David Kelly
Herald Feature: Iraq
Iraq links and resources
