Labour chief quits in donations row

Labour general secretary Peter Watt's resignation came as it emerged the sum involved was more than £600,000 - half as much again as the £400,000 that had been originally reported.

Opposition parties seized on the controversy as proof the Prime Minister had failed to deliver on a promise of a "competence, honesty and change" and of a Government "in crisis".

Mr Watt resigned when it emerged he knew wealthy donor David Abrahams channelled a series of large injections to party coffers via friends and colleagues to keep his own name secret.

He said he had believed he had made all the necessary legal declarations but had now been informed by lawyers of "additional reporting requirements".

The Electoral Commission has launched a formal inquiry into whether any laws have been broken - with one former sleaze watchdog warning it could become a police matter.

But Mr Abrahams said Mr Watt should not have left his job and insisted he had not done "anything wrong or untoward" in making the donations via third parties.

Tories said the latest controversy to hit Mr Brown after a bruising week which has seen his and Labour's poll ratings slump showed the Government was "officially in crisis".

And the Liberal Democrats suggested Mr Watt had received a briefing as recently as July that making non-direct donations "must not be used as an attempt to evade the controls on permissibility and transparency".

Electoral Commission records show a series of large donations from Mr Abrahams' associates Ray Ruddick and Janet Kidd, culminating in gifts of £80,000 from each of them on a single day in July. It also emerged that a third individual, Newcastle-based solicitor John McCarthy, had also made a series of donations on his behalf totalling more than £200,000 since 2004. They are collectively the third biggest donors during Mr Brown's tenure as Prime Minister.