Lindsay Lohan insists she didn't assault Tiffany Mitchell.

The 'Liz & Dick' star - who was booked by police for third degree misdemeanour assault following an altercation with Tiffany at New York City nightclub Avenue in the early hours of Thursday morning (29.11.12) - is adamant she did not punch the fortune teller but has allegedly told friends she did call her a ''gypsy'' because she claims Tiffany's friends tried to steal her expensive purse.

Sources close to the actress told gossip website TMZ.com that the actress feels she was the victim of a well calculated setup because shortly after she turned down Tiffany's offer of a palm reading, she noticed some of the psychic's friends gathering around her designer purse at another table.

The 26-year-old troubled starlet was reportedly informed by several of her other friends in the club that Tiffany's pals had taken her Celine black leather bag.

She is said to have immediately confronted Tiffany and admits calling her a ''gypsy'' but claims she didn't know the word was a slur and didn't lay a finger on the alleged victim.

Tiffany has hired civil rights lawyer Gloria Allred and is believed to be preparing to sue Lindsay for damages.