  We investigate the link between ionised Fe X-ray line emission and continuum
emission in the bright nearby AGN, Mrk 766. A new long (433 ks) XMM-Newton
observation is analysed, together with archival data from 2000 and 2001. The
contribution from ionised line emission is measured and its time variations on
short (5-20 ks) timescales are correlated with the continuum emission. The
ionised line flux is found to be highly variable and to be strongly correlated
with the continuum flux, demonstrating an origin for the ionised line emission
that is co-located with the continuum emission. Most likely the emission is
ionised reflection from the accretion disc within a few A.U. of the central
black hole, and its detection marks the first time that such an origin has been
identified other than by fitting to spectral line profiles. Future observations
may be able to measure a time lag and hence achieve reverberation mapping of
AGN at X-ray energies.
