The 65-year-old Beatles legend sat with his arm draped around the catwalk beauty during the annual GQ Men of the Year awards at London's Royal Opera House.
A source said: "They were sitting on the same table looking very cozy indeed. At one point Paul even had his arm around Elle."
The pair looked very relaxed in each other's company, enjoying an intimate chat and sharing private jokes throughout the evening.
Paul - who was praised as "the greatest living songwriter" by Elton John at the ceremony - was also seen planting a kiss on the cheek of stunning Australian singer Natalie Imbruglia, 32, before whispering into her ear.
The star, who is currently embroiled in a divorce battle from Heather Mills, has not been short of beautiful female company recently.
Last month, he was romantically linked to former model Christie Brinkley after they were seen slow dancing at a music concert and he has also been on several dates with actress Renee Zellweger.
Paul and Renee - who enjoyed a candlelit dinner after meeting at a New York concert - reportedly had their third rendezvous at Jon Bon Jovi's Hamptons party.
A source said: "They chatted through much of the evening and shared one of the chairs outside where people were relaxing on the lawn."
However, Paul has rubbished reports the pair are dating, insisting they are just friends.
Speaking at Tuesday's awards, he said: "We're not dating. We're in the same group of friends and that's it."
