In the blurry photo, the actor is smoking what the Daily Mirror describes as a "spliff."
But Radcliffe's rep insists he's not smoking what the paper says he's smoking. "We categorically deny the allegations regarding Daniel Radcliffe published in today's Daily Mirror," the rep tells PEOPLE. "Daniel does smoke the occasional roll-up cigarette, but he was not doing anything more than this. We are considering our position and will be taking all necessary action in relation to such allegations."
The photo of the bleary-eyed Radcliffe, 20, also show him with an elaborate, elongated mustache painted on his face.
Party pal Wadia Tazi, 26, tells the Mirror: "Daniel was laughing and seemed to find it funny. But he didn't really look like he knew what was going on."
The paper says the party took place in a North London high-rise and was hosted by a friend of Radcliffe's sometimes girlfriend, actress Laura O'Toole.
With reporting by SIMON PERRY