Brown provokes fury over plans to make Balls Chancellor

Senior Blairites warned that it would be "divisive" and make the Cabinet "unbalanced". Their response threatened to derail the sweeping reshuffle to be held after this week's local and European elections.

With Alistair Darling looking doomed from the expenses scandal, MPs are convinced that the Prime Minister intends to replace him with the Children's Secretary.

Mr Brown has for several weeks been rumoured to want his protégé to take over the Treasury, seeing him as a more strategic and combative Chancellor.

One possibility is that it would be combined with promotion for Lord Mandelson to the Foreign Office, to be presented as a balanced set of promotions.

But both ministers and backbenchers warned him against giving the Treasury to one of his closest and most controversial allies, saying it would be a retreat from his original promise to have a big tent government.

One former minister said: "Gordon obviously rates Ed Balls highly but he must be careful that he does not leave the Cabinet unbalanced. That could be the effect if Ed ran the Treasury in the same way that he behaved when he was there as Gordon's special adviser."

Another MP said: "He would be a very unpopular choice. It would look like the Brown camp getting narrower and more powerful at the same time." Mr Brown is known to be planning a bold reshuffle that will see a string of figures caught up in the sleaze scandals leave their posts.

The Children's Secretary is his closest ally but is regarded with horror by Blairites who accuse him of briefing against them during the long battle for power between Mr Brown and Tony Blair.

Mr Balls one derided Mr Blair as "chairman" to Mr Brown's chief executive role. He was also close to disgraced No 10 aide Damian McBride and has been accused of amassing huge influence at Downing Street behind the scenes.

"If Gordon appoints Ed Balls as Chancellor then that's an absolutely terminal act," one ex-minister told the Times. "All hell will break loose."

A senior former minster told the Standard that Mr Balls would represent a Brownite "tribalism", adding: "It would indicate a preference from the Prime Minister for a tribalism and his style of doing things rather than listening to the views of the wider party.

"He is part of a group around Brown who have been intolerant of others, who have only been too ready to take divisive action to pursue their objectives. I personally don't see him as a successful Chancellor who would bring people together."

The Prime Minister is hoping to mirror the success of his first reshuffle, last October, when his decision to bring back former enemy Lord Mandelson snuffed out a Blairite rebellion and strengthened his position.

Among the expected demotions are expected to be Mr Darling and Communities Secretary Hazel Blears. Home Secretary Jacqui Smith has already told Mr Brown privately that she will stand down. Former transport minister Stephen Ladyman said "I would personally prefer to stick with Alistair. It would be better for the country to leave him where he is. He is a steady pair of hands."

With disastrous defeats looming in the elections, backbenchers are talking about putting up a stalking horse challenger for the leadership.

The expenses scandal continued to damage the Government and opposition parties today. Transport Secretary Geoff Hoon was the latest to admit he admitted he "accidentally" overclaimed and said he would pay back £384. Deputy Labour leader Harriet Harman admitted at a meeting of the parliamentary party last night that Labour's position was now "even more difficult" than ever before.

No 10 and Treasury sources denied that Mr Brown had already decided to move Mr Darling out of the Treasury. But the Prime Minister was said to have told a friend he feared the Chancellor was facing death "by a thousand cuts" because of the expenses scrutiny.

Last night Mr Darling gave the impression he was braced for a departure when he "unreservedly apologised" for unwittingly overclaiming money.