British Prime Minister Gordon Brown today said he would hand back more than £650,000 in donations to the Labour Party's coffers after admitting that they had not been "lawfully declared".
As the funding row threatened to engulf his Government, Mr Brown said that the way the payments had been made by wealthy property developer David Abrahams through a series of intermediaries had been "completely unacceptable".
At his latest Downing Street news conference, he insisted he had known nothing about the arrangements and said that he was appointing a retired judge and a former bishop to advise the party on changes to its procedures.
However, the pressure on the Government intensified with the disclosure that the Crown Prosecution Service (CPS) had been in contact with the Electoral Commission which is investigating the affair.
It would be up to the CPS to decide whether to bring criminal charges if the commission concluded that the law had been broken.
Meanwhile, Labour deputy leader Harriet Harman was also under fire after she admitted accepting £5,000 from one of Mr Abrahams' intermediaries, Janet Kidd.
She said tonight she was returning the money. She had insisted that she had not been aware of the arrangement with Mr Abrahams when she accepted the donation for her deputy leadership campaign.
However she was left looking highly exposed after Mr Brown and her fellow deputy leadership contender, Environment Secretary Hilary Benn, revealed they had turned down similar campaign donations from Mrs Kidd.
At his news conference, Mr Brown insisted he had not known of the arrangements with Mr Abrahams until he was told about a report in the Mail on Sundayshortly before he left the Commonwealth summit in Uganda on Saturday night.