Welfare minister Lord Freud was under pressure to resign after Labour leader Ed Miliband disclosed he claimed that disabled people were "not worth" the minimum wage.
Welfare charities joined politicians in calling for the Conservative minister to go over comments he made at a think-tank event where he suggested mentally disabled people should only be paid £2 an hour and not the full £6.50.
Mr Miliband ambushed David Cameron with the revelations at Prime Minister's Questions saying it proved the Tories had returned to their "nasty party" past.
Lord Freud, the great grandson of Sigmund Freud, made the comments on 30 September after being questioned on disabled people and the minimum wage by a Conservative councillor.
He said: "Now, there is a small … there is a group, and I know exactly who you mean, where actually as you say they're not worth the full wage and actually I'm going to go and think about that particular issue, whether there is something we can do nationally, and without distorting the whole thing, which actually if someone wants to work for £2 an hour, and it's working can we actually ..."
The minister was swift to issue a "full and unreserved apology".
In a statement he said: "I was foolish to accept the premise of the question. To be clear, all disabled people should be paid at least the minimum wage, without exception, and I accept that it is offensive to suggest anything else."
He added: "I am profoundly sorry for any offence I have caused to any disabled people."
Responding to Mr Miliband's attack, Mr Cameron said: "Of course disabled people should be paid the minimum wage."
The Prime Minister, whose son Ivan suffered with cerebral palsy combined with a form of epilepsy before his death in 2009 aged six, added: "I don't need lectures from anyone about looking after disabled people."
Following the exchange in the House of Commons, Mr Cameron's spokesman said: "The Prime Minister will want to hear the full context of what happened and also wants to hear what Lord Freud has to say."
Employment minister Esther McVey said Lord Freud's comments "will haunt him".
A Labour party spokesperson said: "This attempt at an apology is not the end of the matter. Lord Freud claims he merely accepted 'the premise of the question' but it was he who said some disabled people are 'not worth the full wage' and it was he who suggested paying people just £2 an hour. In fact he said he would go away to look at this issue, suggesting that this Government would consider it.
"Someone holding these views shouldn't be in government. Disability charities have already condemned Lord Freud's comments in the strongest possible terms, senior Tories have called for Lord Freud to resign, a ministerial colleague has said these words will 'haunt him', yet David Cameron has so far failed to act."
A Liberal Democrat spokesperson said: "The views expressed by Lord Freud are completely unacceptable. The Liberal Democrats are proud to have raised the minimum wage repeatedly in Government and will resist any attempt to cut it for anybody, not least the disabled."
However, they added ministerial appointments were a matter for Mr Cameron.
Tom Pollard, policy and campaigns manager at Mind, said: "It is offensive and outdated to suggest that someone with a disability should be prepared to accept less than minimum wage.
"People with disabilities, including mental health problems, can and do make a valuable contribution to the workplace and should be paid the same as any other employees."
A spokesperson for the disability charity Scope said: "The suggestion that disabled people should be prepared to be paid less than minimum wage is unacceptable."
Lord Freud has come under fire for previous comments including saying that families hit by the so-called "bedroom tax" can "go out to work" or use a sofa bed when the children come to stay.
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