The late actor was reportedly caught in the throes of passion with his 'National Velvet' co-star by his then-wife Betty Jane, a family friend told 'The Life and Times of Mickey Rooney' authors Richard A. Lertzman and William J. Birnes.
Pam McClenathan revealed: "Betty Jane . . . told me she went to visit Mickey at [an LA film studio] around June 1946. She had [the couple's first son] Mickey Jr. in tow and was pregnant with [second son] Timmy . . . When she opened the door to the dressing room, Elizabeth Taylor was on her knees giving Mickey a b**w job."
According to Pam, "all hell broke loose" following the incident and Betty Jane "got a top attorney and big settlement, but [she] really was not happy after that. She wanted a faithful husband."
Betty Jane - who was a backing singer for Elvis Presley, Frank Sinatra and Sam Cooke - divorced Micke in 1949 and married composer Buddy Baker eight days after the split was official.
According to the book, Mickey agreed to pay his ex-wife $15,000 a year for 15 years, plus $12,000 in medical and legal costs but the singer rescinded the agreement when her lawyer alleged her former husband was fraudulently "hiding his real income and assets."
The 'Andy Hardy' star then paid $25,000 in cash to settle the dispute.
The eight-times married actor, who died last year aged 93, had previously said he and Betty Jane "just weren't compatibly compatible."
A spokesperson for the late star told the New York Post newspaper's Page Six column of his alleged affair with Elizabeth: "I have no knowledge of said incident."