New tabloid reports claim Federline spent the night with Lohan at the Raffles L'Ermitage hotel in Beverly Hills last week (04Apr07) after she phoned him and invited the rapper to join her for a drink.
Sources tell the National Enquirer, "Kevin and Lindsay are dating, and Lindsay made the first move.
"Kevin met Lindsay through Britney, and they were always flirtatious with each other."
The insiders claim Federline was invited to "talk business" with Lohan and he thought the meeting with Lohan would be about a film project.
Lohan reportedly suggested the pair speak in private after Federline turned up with his manager, and then retired to her suite with the newly-divorced father.
The publication claims the couple made love. Lohan denies the story.