It is clearly mentioned on page 3 of following document that:
http://www.ukba.homeoffice.gov.uk/sitec ... hip/kol-uk
"Applicants who already have an English language qualification at B1 level or above will not be required to take another one. For example, someone who demonstrated a knowledge of English equivalent to B1 level when applying for entry clearance will not be required to take a further test in order to qualify settlement."
I called Home Office Croydon office at 0870 606 7766 to confirm and was told that people who did IELTS (now expired) at time of entry clearance will NOT need to do it again as they have already satisfied language requirements. I am applying for Naturalisation.
Hopefully guys who has asked the same question from Home Office through email will get the same reply.