• Bacteriophage Mu (Mutator Phage): Bacteriophage Mu is a temperate double-stranded DNA bacteriophage that infects E. coli. It is unique because it replicates entirely by replicative transposition.
• Mutator Phenotype: During both lysogenic integration and lytic amplification, Mu inserts its $37\text{ kb}$ genome essentially at random positions throughout the host chromosome via transposase (MuA) and accessory protein (MuB), causing high-frequency insertion mutations ($1-3\%$ of host genes inactivated, hence named 'Mu' for mutator).
• Other Phages:
• Lambda ($\lambda$): Replicates via bidirectional theta replication followed by rolling circle replication, integrating via site-specific recombination at attB.
• T7: Virulent linear dsDNA phage replicating by concatemer formation.
• M13: Filamentous ssDNA phage replicating by rolling circle mechanism without transposition.
• Conclusion: Phage Mu replicates by transposition (Option 3).

Correct option: (3) Mu