BREAKING NEWS: Alistair Darling forced to pay back expenses

In an embarrassing retreat, he announced that he will hand back around £660, representing part of the service charge on a London flat that he claimed money for but then rented out.

Although a relatively modest sum, his move was seen as an admission of a technical breach of the parliamentary expenses system. He denied, however, that he had claimed money for two addresses at the same time, a claim made in today's Daily Telegraph.

"When I reclaimed the cost of the service charge in July [2007], I was living in the flat," he said in a statement to the Evening Standard. "However, because the service charge covered the period beyond September until December, I will repay the service charge from September to December."

The charge was for £1,004 for a six-monthly service charge on the London flat. In September 2007, he moved out of the flat and into a free grace and favour apartment above 10 Downing Street, renting out his own flat to a tenant. The choreography left him open to the charge that he took expenses for a four-month period during which he had vacated the flat and was receiving rent from it.

However, Mr Darling insisted: "The allegation I claimed for two houses at the same time is untrue."

The Chancellor's decision was all the more embarrassing because it came just an hour after Gordon Brown rallied to defend him against the expenses allegations.

In an unusually strong defence, the Prime Minister said he trusted his long-time ally and had been given a personal assurance that claims he had exploited Commons expenses were unjust.

"First of all, Alistair Darling is a very good Chancellor and has been a very good colleague and friend.

"If he had done anything wrong he would be first to admit it."

The Prime Minister went on: "I don't think there's substance in these allegations. He assures me that this set of allegations has no foundation in it."

His support, in a BBC interview, contrasted with the weak backing for Hazel Blears and some other ministers accused of milking their expenses. It was also markedly stronger than earlier this morning, when he told GMTV that Mr Darling "has been a great Chancellor", using the past tense.