Secretary of State for Equality Harriet Harman will return a £5,000 donation to her deputy leadership campaign.
Yesterday the Prime Minister admitted that £600,000 of donations from controversial businessman David Abrahams were not “lawfully declared.”
Mr Abrahams used four associates to donate money to the Labour over four years. Giving money under someone else’s name is unlawful.
Ms Harman accepted £5,000 from Janet Kidd but it has emerged the money was actually from Mr Abrahams.
She won the Labour deputy leadership in June and was made Secretary of State for Equality, chair of the Labour party and Leader of the House.
“My campaign team understood her to be a pre-existing donor to the Labour party,” she said.
“I don’t think there’s any question of me having broken either the letter or the spirit of the law.”
However, it emerged that one of her rivals for the deputy role, Hilary Benn, was offered £5,000 through an associate of Mr Abrahams but refused.
He was later given money directly by Mr Abrahams, which he accepted.
Gordon Brown turned down donations to his leadership campaign from associates of Mr Abrahams.
Ms Harman’s Conservative shadow, Theresa May, has asked her to explain why she accepted a donation two weeks after her campaign ended.
As chair of the Labour party, Ms Harman has asked Lord Whitty to investigate, but Lib Dem and Conservative MPs have called for a police inquiry.