The prospect of a referendum on Scottish independence moved a significant step closer yesterday when Wendy Alexander, the Scottish Labour Leader, signalled that her party would not stand in the way of a Bill setting up such a vote.

Ms Alexander indicated she had made a dramatic U-turn over her opposition to an independence referendum and was preparing to gamble on the SNP losing a public vote.

Speaking on the BBC Politics Show, Ms Alexander issued a direct challenge to Alex Salmond to put his referendum plan to break up the UK before the Scottish Parliament as soon as possible, urging the First Minister to “bring it on”, adding: “I don't fear the verdict of the Scottish people.”

Sources close to the Labour leader revealed that Ms Alexander has for some time been in favour of allowing the SNP administration to hold a referendum on independence, but was keen to win over senior Labour Party figures at Westminster before going public.

It is understood that Gordon Brown now agrees that allowing the SNP its way is the best chance of weakening Mr Salmond's grip on power.

Speaking yesterday, Ms Alexander said that there “have been tactical discussions”.

Laying down the gauntlet to Mr Salmond, she added: “This is your policy - have the courage of your convictions to bring it forward and let the people decide.”

Mr Salmond has promised a referendum on Scottish independence in 2010 and has offered to include any proposal that comes out of the Calman Commission, which is studying which extra powers could be transferred to an independent parliament.

Ms Alexander argues that Mr Salmond would need to produce a Bill outling his referendum plan by next year to give it time to go through the parliamentary process.

Asked whether her party would then back it, Ms Alexander said: “I haven't ruled it out and the reason is this.

“There are many Scots who are rightly worried about the uncertainty created by the SNP, who dislike the fact that last month Alex Salmond revealed that he thinks he could take Scotland out of the UK without even having a simple majority.”

Ms Alexander's stance on the issue was in stark contrast to the last time she was asked for her views on an independence referendum. On March 28, the Labour leader had told the BBC that she was opposed to a referendum and claimed that the Scottish government did not have enough support to hold one.

A Labour spokesman said: “There have been discussions at all levels of the Labour Party and it's been an open secret for months that there are many in the Scottish group of MPs and MSPs who think that there is merit in getting the issue out of the way. The issue is that there is no Bill, and it is Alex Salmond's cowardice in bringing this forward.”

Mr Salmond claimed yesterday that there were signs that the Opposition was beginning to crack on the issue: “What I would say to the unionist parties is that if we bring a referendum Bill, as we shall, in 2010 to the Scottish Parliament, and ourselves, the Greens and probably Margo MacDonald back it, and there's a sort of unionist cabal saying, ‘No, the Scottish people are not entitled to decide their own future,' then that would surely become a dominating issue - an issue transcending the 2011 election campaign.

“And woe betide the Unionist parties if they stand on a platform of denying the Scottish people self-determination. One way or another, the Scottish people will decide.”

A recent poll suggested that support among Scots for independence is at an all time low at only 19 per cent, implying that Mr Salmond would suffer a humiliating defeat if the vote did take place.

John Curtice, Professor in Politics at the University of Strathclyde, said that the correct strategy for Labour would be to agree to a multi-option referendum that includes any proposals from the Calman Commission.

“Any significant extra powers that Calman suggests should probably go to a referendum anyway. It would also avoid the embarrassing situation of having to vote against their own ideas if the Calman recommendations are contained in Mr Salmond's Bill.”

The SNP accused Labour last night of panicking in the face of rising support for the nationalist administration.

Nicola Sturgeon, the Deputy First Minister, said: “The Labour Party is cracking under pressure on the referendum question, and is being forced to consider supporting the right of the people to choose Scotland's future.”

The Liberal Demcorats and the Conservatives were also sceptical of Ms Alexander's new approach to the constitutional question.

A Tory spokesman said: “Scotland's future should be decided by calm and mature debate, not by a knee jerk and panicky reaction to Labour's election meltdown.”

Robert Brown, the Liberal Democrat chief whip, also described Ms Alexander's suggestion as a “panic response”, adding that “politicians should not support referendums on policies which they do not back”.

The SNP's own plans for a referendum also suffered a blow yesterday when one of the party's biggest donors claimed that he does not believe Scotland is ready for independence.

Sir Tom Farmer, the founder of Kwik-Fit, said that it would take at least two generations to achieve an independent Scotland.

In an article in The Sunday Times, Sir Tom, who donated £100,000 to the SNP before last year's election, accused the First Minister of trying to rush the issue of a referendum and of making it a dominant issue.

“I don't think we should be talking about referendums at this time ... change should happen at a pace that we can cope with,” he said.