Jacqui Smith was at the centre of an extraordinary blame game today over who should carry the can for the Gurkha fiasco.

The Home Secretary was fighting a rearguard action against claims that she had failed to understand the scale of the backbench revolt against her department's policy to severely restrict the number of ex-soldiers allowed to settle in Britain.

Allies claimed she was forced to bow to the Chancellor Alistair Darling and Defence Secretary John Hutton because she had lost all clout in Cabinet.

They said Ms Smith had written proof that she had warned against restrictions on former Gurkhas in the lead-up to last Friday's announcement of the policy, which was voted down by Labour backbenchers on Wednesday.

They also launched an attack on Nick Brown, the chief whip, claiming he had been part of the reason for the humiliation because she had warned him that defeat was looming.

Senior Labour MPs now fear that Ms Smith is the victim of a “black propaganda operation” to pin the blame for the 21-vote defeat on her because she is certain to be ditched from the Home Office during a reshuffle.

With her authority within the Cabinet at rock bottom following the scandal over her husband using taxpayers' money to pay for two porn movies and the furore over her second home expenses, Ms Smith is said to have failed to persuade her Cabinet colleagues to allow in more former Gurkhas who served with the British army before 1997. Some Government whips are also understood to have been bewildered as to why a more intense operation was not launched by Nick Brown to get Labour backbenchers to support the Government on the vote in which dozens abstained and 27 voted with the Opposition.

Ms Smith is regarded by many at Westminster as politically “dead” and there is speculation that she was abandoned over the Gurkhas as part of moves to prepare for Children's Secretary Ed Balls to take her job in a summer reshuffle.

Martin Salter MP, Labour's chairman of the all-party Gurkhas group, said: “I sincerely hope that people are not going to mount a black propaganda operation against Jacqui. That would be monstrously unfair.”

He added: “The block all the way through this has been the Ministry of Defence and the Treasury. I found Home Office ministers to be far more supportive and far more flexible.”

However, the Treasury insisted it had not tried to change Home Office proposals for dealing with the Gurkha issue.

A source added: “It's categorically untrue that the Chancellor blocked any such proposals to be more lenient.”

A Ministry of Defence spokesman said: “The proposals that were put forward are the Government's policy and were backed by John Hutton. It was put in the House of Commons by the Home Office.”

The row is over new rules allowing more former Gurkhas to settle here based on long service, medals received, and those injured in battle.

The Home Office said the regulations would allow about 4,300 more to settle, but the Gurkha Justice Campaign put the figure at just 100. The Government had argued that ditching settlement restrictions on 36,000 former Gurkhas could land the taxpayer with a £1.4 billion bill. However, an insider said that that figure had been “plucked out of thin air”.

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