The source said: "They have not split up or anything like it. That story is just plain wrong."
Friends of the couple had earlier told The Sun that the engagement was "off at this stage" adding that Rooney was "in pieces" at his parents' home.
A source close to the pair said: "Coleen went absolutely mad. She was screaming at him in tears. She was so upset that she slapped him and was hitting out.
"He begged her not to go and promised he'd never do it again. But she wasn't having any of it."
The couple learned of the allegations as they returned from a two-week holiday in Barbados and New York. The source said Miss McLoughlin told friends there was "no way" she would "stand by a man who sleeps with a prostitute".
The Rooney revelations comes after England coach Sven-Goran Eriksson, 56, and FA chief executive Mark Palios, 52, confirmed they had an affair with 38-yearold secretary Faria Alam.