Will Blair's farewell gift to Mandelson be a peerage?

The former prime minister is expected to recommend his old friend to the House of Lords Appointments Commission shortly.

The move will anger some Labour MPs and is being seen as an attempt to avoid a snub by Gordon Brown. European Union commissioner Mr Mandelson and Mr Brown are bitter rivals and he is unlikely to want to offer him an elevated position in the Lords.

Mr Mandelson would not be able to take his seat in the upper house as there are still 16 months left of his term as trade commissioner in Brussels.

It is usual practice for Britain's EU commissioners to be sent to the Lords after they step down.

But Mr Blair's decision to put his close friend forward is likely to provoke accusations of cronyism at a time when prosecutors are deciding whether to press charges in the cash-for-honours affair.

A friend of Mr Mandelson said: "It will be like an honorary title and he won't get involved in the day-to-day workings of the House of Lords. He wouldn't want to anyway. But I'd expect him to make an appearance when things get spicy."

Mr Blair is the first prime minister to have his resignation honours list "sleaze-tested". Traditionally, the outgoing premier is allowed complete freedom to recommend friends, loyal servants and aides for honours on the day he leaves Number Ten.

But Mr Blair has agreed to allow the Lords Appointments Commission to scrutinise the list to prove he is not cramming the Lords with wealthy Labour donors and political advisers.

The commission is determined to avoid a repeat of the "Lavender List" scandal of 1976 - when the Labour premier Harold Wilson nominated controversial businessmen. The origin of the name is based on claims that the head of Wilson's political office, Marcia Williams, had written the original draft on lavender-coloured notepaper.

Mr Mandelson has been a controversial figure after being twice sacked from the cabinet. The first occasion was for not declaring a loan from a fellow MP to buy a home, and the second was over a scandal involving allegations he fast-tracked passport applications for friends. One senior Labour MP said: "This is right up Mandelson's boulevard - he's been lording it up for years."

It is not clear what title he will take but possibilities are Lord Mandelson of Hartlepool, his former Commons constituency, or Lord Mandelson of Hampstead, the area of London where he grew up.