The Guardian newspaper has claimed that investigator Glenn Mulcaire intercepted messages left by relatives for the 13-year-old in 2002 on behalf of the newspaper.
Labour has demanded a full inquiry into the claims, and News of the World parent firm News International said the development was of "great concern".
Speaking on behalf of Sally and Bob Dowler, their lawyer Mark Lewis said that the family had "been through so much grief and trauma without further distressing revelations to them regarding the loss of their daughter".
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He added: "It is distress heaped upon tragedy to learn that the News of the World had no humanity at such a terrible time.
"The fact that they were prepared to act in such a heinous way that could have jeopardised the police investigation and give them false hope is despicable."
The lawyer also said that the Dowlers had been told that their own phones were targeted by the newspaper.
Nightclub doorman Levi Bellfield was last month convicted of the murder of Milly Dowler and has been sentenced to life in prison.
The Guardian claimed that some of the messages on Dowler's phone had been deleted by Mulcaire, and quoted a source as saying that the act gave false hope to friends and family, who mistakenly believed that Milly herself had cleared the inbox and was alive.
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Speaking today, Prime Minister David Cameron said that the allegations were "quite shocking - that someone could do this, actually knowing that the police were trying to find this person and trying to find out what had happened".
He added: "If they are true, this is a truly dreadful act and a truly dreadful situation."
In a statement, News International said: "We have been co-operating fully with Operation Weeting since our voluntary disclosure in January restarted the investigation into illegal voicemail interception.
"This particular case is clearly a development of great concern and we will be conducting our own inquiry as a result. We will obviously co-operate fully with any police request on this should we be asked."