LABOUR has received a £1m donation from an Iranian-born industrialist, providing a massive boost to party coffers.

Tony Blair has publicly thanked Mahmoud Khayami for the huge gift. It is one of the most generous ever donations to Labour, eclipsed only by a £2m donation from the steel billionaire Lakshmi Mittal, and a similar sum given by Lord Sainsbury.

It comes at a time when Labour is facing a serious financial crisis, having run up £20m of debt.

Several key donors have called in loans in the wake of the “cash for honours” scandal. The party’s leadership elections are costing well over £1m to run, threatening to plunge the party further into the red.

Khayami, a Muslim, is a major supporter of the government’s city academy programme. Although he is a prominent Muslim, he is reportedly preparing to sponsor two new city academies which will be run on Christian principles, through a trust headed by Lord Carey, the former Archbishop of Canterbury.

Speaking to the Observer newspaper, the prime minister said last night: “I would like to thank Mahmoud Khayami for making such a generous donation to the Labour party and for supporting our values of economic prosperity coupled with social justice.”

He praised Khayami, who fled Iran after the fall of the Shah, as a “committed promoter of inter religious understanding”.

Khayami has reportedly donated £530,000 to Labour now and pledged the rest of the £1m in the near future.

He said he was “proud” to support the Labour party.

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