The Labour Party last night finally confirmed that the Formula One chief, Mr Bernie Ecclestone, made a £1 million sterling donation to its election fighting fund in January. The acknowledgement of the scale of Mr Ecclestone's financial support added to the growing pressure on the Prime Minister, Mr Tony Blair, who for the first time finds himself at the receiving end of allegations evocative of the "sleaze" era which dogged the last Conservative government.
The party confirmed that it was returning the money, denied any wrong-doing, and said the issue raised "serious questions about the way political parties are funded".
A root-and-branch review of funding and the possibility of state financing of parties - about which the Prime Minister has been reluctant - were firmly back on the political agenda last night.
But the serious questions were still being directed at Labour amid suggestions that Mr Ecclestone's donation might have influenced the government's decision to exempt Formula One from its proposed ban on tobacco advertising.
The government's attempts to kill off the controversy have not been helped by its reluctance over the previous three days to confirm the scale of Mr Eccleston's financial support for its election effort.
After weekend disclosures, party spokesmen maintained the actual amount would not be known, in accordance with the party's own rules and procedures, until next September's party conference.
Even at lunchtime yesterday, the Home Secretary, Mr Jack Straw, said he did not know the sum involved. But he insisted it had not been "unwise" to accept the donation in the first place.
"What we have done is to follow exactly what we were committed to in our manifesto; namely to ban overseas donations and to say to all donors that if they gave over £5,000 the fact of their name, but not necessarily the amount if they wished it, would be disclosed," Mr Straw said.
However, as the controversy escalated, a senior Labour spokesman said: "We have spoken to Mr Ecclestone's office during the day and secured his agreement that we can state publicly that he made a donation before the general election of £1 million."
The spokesman added that while the money would be repaid "it has been spent so it will have to be found". He added that he could not rule out redundancies at the party's headquarters as a result.
Earlier, Downing Street indicated that fundamental changes in the way parties are funded might result from the Formula One row.
Labour had announced its decision to return Mr Ecclestone's donation on Monday night after seeking guidance from Sir Patrick Neill, the new chairman of the Committee on Standards in Public Life.
And the party source said: "In the light of that decision, you have to wonder whether it will be possible to raise funds for parties in the way it has been done."
The shadow health secretary, Mr John Maples, said last night: "Labour's admission of this donation sits uneasily with their rhetoric in opposition."
He said Labour had claimed the party in government needed to be open about funding. "In stark contrast, this admission has had to be dragged out of them under pressure from the media. They have still not answered key questions about this affair."
Mr Ecclestone said yesterday he was happy with Labour's decision to return the money. He had sought no favours for his donation, having met Mr Blair and been impressed by his plans for the country. "It had nothing to do with tobacco advertising, this was well before anybody started talking about tobacco advertising."
Reports yesterday said Mr Ecclestone had donated between £8 million and £10 million to the Tories between 1992 and 1997.