The British Prime Minister, Mr Tony Blair, has accused the Conservative leader, Mr William Hague, of making "wild, totally unfounded allegations" as the Tories claimed a "dirty tricks" campaign was being waged against their treasurer, Mr Michael Ashcroft.
A war of words broke out at Westminster yesterday following revelations that the Conservative Party will receive £1 million from Mr Ashcroft this year in monthly donations through the Belize Bank Trust.
The Tory chairman, Mr Michael Ancram, has written to the Metropolitan Police calling for an inquiry, after claiming that the party's private bank accounts were "penetrated" to obtain details of the donation.
But as senior Tory figures talked of sinister goings on and of people in the Labour Party being prepared to do "literally anything to stay in power", Mr Blair dismissed the Opposition's "hysterical ranting".
He told Labour MPs in his beginning-of-term address: "William Hague is guilty of bad judgment in making these wild, totally unfounded allegations."
He went on: "My own view about (Lord) Archer and Ashcroft and the other issues is what it really centres on is the judgment of William Hague. The real judgment, which everything else flows from, is he decided the only way he could keep his party together was to give in to the forces most on the up, which are the Thatcherite and right forces in the Conservative Party."
Meanwhile, Cabinet Office minister Dr Mo Mowlam was writing to Mr Hague to protest at the Tories' suggestions of "dirty tricks".
The reports about Mr Ashcroft's donation have led to accusations that Mr Hague broke a pledge to ban foreign donations to his party. The Tory vice-chairman, Mr Tim Collins, said yesterday he did not know who was responsible for the leak of information about funds. But he added: "There is a very serious issue here about people inside the Labour Party and outside it who are determined to destroy Michael Ashcroft because he has committed the sin of contributing money to the party that is standing up against Tony Blair and his government.
"That I think is something very sinister. It is something that comes out of a banana republic, not something that comes out of Britain."
Speaking later on BBC Radio 4's The World At One, Mr Collins said Mr Ashcroft was a UK passport-holder and registered to vote in UK elections.
But Cabinet Office Minister Mr Ian McCartney said Mr Ashcroft's donation would not be acceptable under the new Political Parties and Referendums Bill, which will regulate party funding.
"We are talking here about someone who lives in Belize . . . The draft legislation is quite clear - money through foreign-based trusts is not allowed."
Mr John Strafford, chairman of the Campaign for Conservative Democracy, said the publicity surrounding Mr Ashcroft would continue until he resigned.