The denial came despite an earlier letter written to the girls' parents by Cardinal George Pell, apologising for the priest's crimes and acknowledging the findings by the church's investigator that the cleric had raped both the children.
The revelations are contained in a new book by Chrissie Foster, a mother whose daughters were abused by Oakleigh priest Father Kevin O'Donnell in the 1980s and 1990s.
In 1995, O'Donnell became, at 78, the oldest man to be jailed in Victorian history after he admitted abusing 10 boys and two girls over a 31-year period. He is believed to have abused hundreds of children all over Victoria between 1942 and 1992.
Hell On The Way To Heaven, written by Ms Foster in collaboration with ABC journalist Paul Kennedy, chronicles her family's fight to obtain justice from church authorities on behalf of her daughters, Emma and Katie.
Emma died of a drug overdose in 2008 after years of drug addiction and mental illness caused by her abuse as a primary school student at the hands of O'Donnell.
The book also reveals that, in the year O'Donnell was jailed, lawyers for the Catholic Church accused a man - attacked by the cleric in 1972 when he was in grade 6 - of being guilty of contributory negligence because he:
FAILED "to take care of his safety";
DID NOT make any complaint at the time of the abuse; and,
LATER, failed to report O'Donnell's conduct to the authorities.
The church's denial that Ms Foster's daughters had been abused by O'Donnell was made in 2004 in response to the Foster family's lawsuit against the church.
In a letter from lawyers acting for the Archdiocese of Melbourne, the Fosters were told that the defendants "do not admit that the plaintiffs were subjected to physical and/or sexual and/or psychological abuse while an infant by Kevin O'Donnell".
The denial came despite earlier findings by Peter O'Callaghan, QC, the church-appointed commissioner who investigates complaints against clerics, that both girls had been abused by O'Donnell.
It also came despite a letter to Emma Foster in 1988 from then Melbourne Archbishop Pell, in which he sought "to apologise to you and those around you for the wrongs you have suffered at the hands of Father Kevin O'Donnell".
O'Donnell was released from jail in late 1996 and died in March the following year.
The book also reveals the church recently made a compensation payment of $50,000 to a retiring priest who had worked for many years on behalf of clerical sexual abuse victims.
The payment to the priest came despite the church's refusal to make payments to the so-called "secondary victims" of sexually abusive clergy - and is $20,000 more than some child abuse victims have received from the church.
The book alleges that Mr O'Callaghan ordered the church to pay $50,000 to a priest who had worked on behalf of young sex abuse victims after the cleric became burnt out.
The payment was partly for "stress and strain" and was despite the fact the priest had not suffered from sexual abuse.
The payment was outside the terms of Mr O'Callaghan's appointment.
SIC: HSAUS