The Electoral Commission has decided to refer the Labour donations affair to the Metropolitan Police "for further investigation".

Prime Minister Gordon Brown has been under mounting pressure since it emerged that more than £600,000 of donations to Labour had been made via middlemen.

The scandal moved a step closer to the premier after a member of his campaign team admitted he had put deputy leader Harriet Harman in touch with one of the intermediaries used by property developer David Abrahams to make donations on his behalf.

And on Thursday evening Work and Pensions Secretary Peter Hain admitted that he failed to register a £5,000 donation to his deputy leadership campaign by Labour's new chief fund raiser. He has blamed an "administrative error" for the failure to inform the Electoral Commission of the donation by Jon Mendelsohn.

It emerged on Wednesday that Mr Brown's chief fundraiser, Jon Mendelsohn, had been aware of the situation involving Mr Abrahams - described by the premier himself as "unlawful".

The latest police investigation into Labour finances comes just months after the cash-for-honours inquiry ended without charges being brought.

Tory leader David Cameron, speaking from Washington, said he was not surprised the matter had been referred to the police.

"I thought that the Prime Minister should have referred the matter to the police himself. The Prime Minister said that law-breaking had taken place and so that's right.

"I think what is extraordinary is that the general secretary of the Labour Party and the person appointed by the Prime Minister with responsibility for fundraising didn't know the most basic amount of the law, which is that donations have to come from the person they say they come from.

"If the Prime Minister didn't know that and if he didn't know what was going on in his party then it raises very serious questions about his own ability and his own integrity."

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