Brown 'must have known' - Cameron

Mr Cameron said it "beggars belief" the Prime Minister was not in the know and accused him of trying to "spin his way out of a scandal".

Property developer David Abrahams claimed as many as 10 senior party figures were aware he was using proxies to hide his identity from anti-sleaze regulators.

And he also issued fresh allegations - dismissed as "fictional" - that Labour's chief fundraiser Jon Mendelsohn had backed the use of disguised donations.

Mr Cameron said: "Are we really meant to believe that Mr Mendelsohn didn't know what the law was, didn't tell anyone about it, that Brown knew nothing? It beggars belief." Asked if the PM was being dishonest, he told the BBC: "He is trying to spin his way out of a scandal. If you think spin died with Tony Blair, forget that. This lot are actually worse."

The escalation came as it emerged Labour faced a third police investigation after a formal complaint was lodged about its leader in Scotland, Wendy Alexander. Mr Brown was reported to have urged her not to quit over a £950 donation from a Jersey-based businessman amid concerns it could increase pressure for similar scalps at Westminster.

The Metropolitan Police have already launched a criminal investigation into the handling of Mr Abrahams' donations.

Mr Abrahams said he had not only told Mr Mendelsohn that he was giving money through proxies to keep his name out of a public donor registers at a dinner in April where Gordon Brown was the guest speaker, but that the fundraiser told him it "sounds like a good idea". He was "one of only a very few people who were aware of this method of making donations", he said - a number his spokesman said amounted to "about 10".

But Mr Mendelsohn insists he only became aware of disguised donations when he took up his job with Labour in September, was assured they were within the rules but felt uncomfortable about them and had been preparing to put a stop to the practice. "This latest statement is fictional and completely untrue. I will be co-operating fully with the police in their investigation," he said.

The Prime Minister tried to regain some political initiative by declaring his intent to use the present controversy to speed progress on funding reform.