Brown stuns MPs with call for Osborne inquiry

"This is a very serious matter and I hope it is investigated by the authorities," said the Prime Minister, triggering uproar in the House.

His call was made during Prime Minister's Questions in a packed Commons after two days of heated claims but no hard evidence of wrongdoing. It took MPs by surprise - and caught Mr Brown's own officials on the hop: they were unable to explain at first what allegations he meant and which investigators were supposed to look into them.

Senior Labour MP Tony Wright who, as chairman of the public administration committee led investigations into the cash-for-peerages scandal, was baffled and said: "we are not talking about corruption here. we are not talking about law-breaking. what there is, as someone said, is a twerp and a massive misjudgment.

"I'm not sure which authorities Gordon thought he was talking about." David Cameron and his aides also demanded to know what Mr Brown was referring to and asked whether Peter Mandelson - who describes the oligarch as a friend - would be subject to a similar inquiry.

A Cameron aide said: "Why is Gordon Brown's office not able to say what sort of investigation he wants and by whom? And why isn't he calling an investigation into Lord Mandelson's relationship with Mr Deripaska as well?"

Mr Osborne and Lord Mandelson both met Mr Deripaska in August on his £80 million yacht moored off Corfu while guests of financier Nathaniel Rothschild. Mr Rothschild claims Mr Osborne tried to solicit a political donation to the Tories from the Russian.

Mr Deripaska, as a foreign citizen, is ineligible to give money but Mr Rothschild revealed that Mr Osborne and senior Tory fundraiser Andrew Feldman considered taking money from one of his British firms. Sir Alistair Graham, former chairman of the Committee on Standards in Public Life, said there should be a preliminary inquiry by the Electoral Commission.

He said: "I would have thought that somebody should initially look to see if it's worthy of a full investigation."

However, he doubted whether even if an offence were committed it would be possible to get the evidence to prove it in a court of law.

But this lunchtime the Electoral Commission was not launching a probe into whether there had been a breach of the Political Parties, Elections and referendums-Act. A spokesman said: "There is no offence in PPERA of soliciting a donation. Section 61(1)(b) of PPERA provides that an offence may be committed if certain specific acts are undertaken. No one has presented any evidence to the commission that an offence under section 61(1)(b) of PPERA has been committed."

Mr Brown was prompted to moot the possibility of an investigation by Labour firebrand dennis Skinner, a long-standing foe of Mr Osborne. He said: "Will the Prime Minister give us a rock-solid assurance, whatever he does in order to clear the debt of the nation's finances, he will never, ever meet a Russian billionaire to try and cadge the money. He will leave that to the sleazy Tory Party opposite."

After Mr Brown's reply, his staff were initially unable to say what sort of investigation he had in mind. But a political spokesman later said: "It is basically about the relationship he had with an impermissible foreign donor."

Asked what were Mr Brown's specific concerns, he replied: "If there were conversations about whether the donations were made to the Conservative Party, that's a serious matter."

Labour MP Denis MacShane said he believed Mr Osborne may have broken the law. He said party funding laws ban "any act in furtherance of ... or is likely to facilitate" a donation from an impermissible donor.

But former Tory party treasurer Lord Kalms said the Corfu saga was "regrettable" and "unfortunate" but "overhyped".

Mr Osborne today ruled out a court action to clear his name over the Corfu donations allegations.

The shadow chancellor backed away from a defamation action after former friend Mr Rothschild produced a witness to support his claims. Mr Feldman also made clear he would not sue, despite being accused of serious misconduct.

But the retreat left a question mark hanging over their reputations.