Ken confronted over grant scandal

The Mayor was challenged by lawyer Brenda Stern over the role played by his aide Lee Jasper in a London Development Agency decision to spend £346,000 on a project run by an organisation called Diversity International.

In an interview for the Evening Standard yesterday, she claimed the Mayor was either lying or being lied to about the grants.

Today she and Andrew Gilligan, the Standard journalist behind the reports, became involved in a heated exchange with the Mayor during his weekly press conference at City Hall.

When another Standard journalist asked the Mayor to respond to yesterday's article, Ms Stern, who was in the front row with Mr Gilligan, demanded that a fuller answer be given to her accusations.

Mr Livingstone responded angrily: "That is all you are going to get. I have taken legal advice. Give us some evidence. We will respond to it."

When Ms Stern, who rose to her feet, continued, Mr Livingstone went on: "We are not taking this. Don't turn up with a stunt like this."

Ms Stern replied: "Don't accuse me of pulling a stunt."

Mr Livingstone: "This is a stunt. Can I just advise you what you say doesn't land you in court. This is a press conference, not a place for disgruntled former employees to have stunts."

Noting how angry Ms Stern had become, the Mayor added: "I would hate to see you when you are miserable."

Mr Gilligan then asked the Mayor to respond to the initial question, but he replied: "Don't shout or try and provoke me. I would urge you to be more cautious with the wild allegations you have made."

Ms Stern was dismissed from her post as a senior manager at the LDA after raising concerns about the involvement in the Diversity International grant decision of policing and equalities adviser Mr Jasper, a friend of Diversity International boss Joel O'Loughlin.

The Mayor's statement today claimed a series of articles in the Standard over 10 days had presented "grave allegations" without evidence.

He said: "In light of this, the Greater London Authority has now demanded a full and unequivocal retraction of these allegations by the Evening Standard and the printing of a public apology." He repeated his call for Mr Gilligan, who he accused of quoting selectively from emails to discredit Mr Jasper, to be sacked by the Standard's editor.

"This systematic record of unproven allegations and falsifications is why I have called on Veronica Wadley to dismiss Andrew Gilligan," the Mayor said.

He said an internal LDA review of a series of grants that was already under way would include any evidence presented to it by Mr Gilligan.

Ms Stern, who was invited by Mr Gilligan to address the Mayor, told him: "I'm more than happy to give you evidence." She said her reputation as a lawyer was at stake because of the Mayor's refusal to act on her allegations, which centre on the belief that public money was wasted to prop up Diversity International following Mr Jasper's intervention.

The LDA paid the Liverpool-based firm around £50,000 more than its contract, which was to provide a website to help black firms. It won the contract despite having little expertise in the area.

The situation became further confused today when Mr Livingstone said that because Mr Jasper was one of the two "political appointments" he had been allowed to make without a formal job advert or reference to the candidate's ability, Mr Jasper had no power to direct other staff.

This may conflict with an email exchange between Mr Jasper and LDA chief executive Manny Lewis regarding Ms Stern, who was on secondment from a City law firm, in which Mr Jasper advises: "Send her back."

Today the Mayor said of his political appointees: "They're not allowed to issue any form of directive to any other member of staff."

The Standard investigation has uncovered questions over a series of grants, worth around £2.5 million in total, made by the LDA to organisations with which Mr Jasper has links. In several cases Mr Gilligan's investigations have raised questions about how the money was spent and the results - or lack of them - that were achieved.