Gordon Brown was today left defending another colleague over the proxy donor scandal.
Mr Brown insisted his chief fundraiser Jon Mendelsohn's position had not become untenable, despite the revelation he had been aware the millionaire David Abraham's was funnelling money into the Labour party through intermediaries.
In a statement released today, Mr Mendelsohn, Labour's director of general election resources, confirmed he was aware Mr Abraham's was laundering funds into the Labour party.
Mr Mendelsohn said he was unhappy with this situation and wanted to resolve it with the millionaire. However, he was not aware it broke party funding laws and did not feel the need to tell Labour's national executive committee (NEC).
After being appointed by Mr Brown on September 3rd, Mr Mendelsohn inquired about donations from Janet Kidd, Ray Ruddick and John McCarthy because he did not recognise their names.
Former Labour secretary general Peter Watt informed him Mr Abraham had a long-standing arrangement of donating funds through third-parties and this was dealt with in relation to the party's reporting requirements.
Mr Mendelson said: "He told me these donations fully complied with the law and I had no reason to doubt that information".
But he said he had been "unhappy" with donations coming through a conduit and "determined it would not play a part in our future plans."
He explained: "I was very concerned that these arrangements did not meet the strict transparency test that I wished to see in place."
Mr Mendelsohn sought to tell Mr Abrahams his method was unacceptable and wrote to the millionaire requesting a meeting, in a letter Mr Abrahams made public last night.
In a Commons session dominated by the latest funding scandal to beset the Labour party, the prime minister defended his chief fundraiser.
He resisted Conservative calls for his removal, insisting Mr Mendelsohn had "absolutely no involvement" in the donations as they had been happening for a period of years.
An embattled Mr Brown defended his handling of the crisis, reminding MPs an inquiry was underway.
He called for cross-party support to make any necessary reforms of party funding laws, saying he was "ready to take all further measures".
David Cameron has demanded to know why the police were not informed of the breach of donation laws.
Mr Brown insisted it is up to the Electoral Commission to decide on further action, but would-be Liberal Democrat leader Chris Huhne has written to the Metropolitan police demanding a criminal inquiry.
During a tense prime minister's questions, the Tory leader said Mr Brown could no longer claim to be above spin and people were now asking whether he was up for the job.
Acting Lib Dem leader Vince Cable said the past few weeks had seen the prime minister's "remarkable transformation.from Stalin to Mr Bean."
Mr Brown has denied accusations of incompetence.