The Countess of Wessex, the former Ms Sophie Rhys-Jones, lost her first public relations client yesterday in the aftermath of the "Sophie tapes" affair.
Banyan Tree hotels, the Thai luxury hotel chain, dumped the countess's PR firm, R-JH, after her former business partner, Mr Murray Harkin, claimed he could arrange gay sex parties.
Mr Harkin, who has now resigned from R-JH, told a News of the World undercover reporter, who posed as an Arab sheikh, that he could call the Banyan Tree in Phuket to get a "discreet villa" for gay sex with young boys.
A spokesman for R-JH confirmed that the hotel chain had "decided not to continue working with the agency".
R-JH was appointed as the UK PR agency for the Banyan Tree and began work in March this year.
"Work continues at R-JH and we are grateful for the support and best wishes that we have received from colleagues in the industry and most importantly our clients, many of whom have been with the agency for several years," said the spokesman.
"We regret any embarrassment caused to Banyan Trees and wish them much success with their future developments."
The countess was back at RJH's London offices this morning in a clear signal that she hopes to continue as a working royal.
She returned to work after a weekend of drama when she stepped down as chairwoman of her public relations company. She remains a director and majority shareholder.
The company is now being restructured in the wake of the "Sophie tapes" row and it seems the countess hopes to play a full part in the reshaping of the company.
Absent was Mr Harkin (36), the company's co-founder who resigned on Sunday amid damning revelations of his personal life concerning gay sex parties and drug abuse. He had also called into doubt Prince Edward's heterosexuality despite the countess's insistence, in an authorised but highly criticised interview published last week, that the prince is not gay.
Mr Jack Cassidy, formerly a non-executive director of R-JH with more than 25 years' experience in marketing and PR, has been appointed acting managing director to succeed Mr Harkin. It remains to be seen whether the countess can remain as a high-profile PR executive or will be forced to quit the company. The outcome of a Buckingham Palace review, conducted by the queen's advisers, will influence her decision.
A palace inquiry, likely to be headed by the Lord Chamberlain Lord Luce and Queen Elizabeth's private secretary, Sir Robin Janvrin, is to draw up new guidelines to ensure working royals avoid possible conflicts of interest and do not cash in on their royal status.
At Westminster the Prime Minister, Mr Blair, was facing calls from Labour backbenchers to institute a review of the future role and structure of the royal family in the aftermath of the latest scandal.
Downing Street said Mr Blair remained 100 per cent in support of the monarchy.