The Labour Party’s most senior official resigned last night after admitting that he knew about arrangements to keep secret the source of donations totalling almost £600,000.

Peter Watt, the party’s general secretary for almost two years, said he knew that three named donors were middlemen for David Abrahams, a property developer, allowing him to give money anonymously. Last night party sources said they believed that Mr Abrahams might also have used a fourth intermediary to donate £25,000 four years ago.

After a day in which senior Labour figures were locked in talks with lawyers, Mr Watt accepted responsibility and offered his resignation.

Labour confirmed last night that John McCarthy, a solicitor, had also made six donations amounting to £202,125 over three years. The last, of £35,000, was made in June, the day after Gordon Brown became Prime Minister. It is the latest blow to hit Mr Brown, who is reeling from the lost-data fiasco and Northern Rock, and overshadowed his fightback speech to the CBI yesterday.

In his resignation statement Mr Watt said that he had not initially realised the gravity of the situation, which appears to be a clear breach of a law introduced by Labour requiring that all donations of more than £5,000 are fully declared. His statement caused surprise at Westminster, given his deep involvement in the cash-for-hon-ours inquiry and his role as the party’s registered treasurer responsible for financial reporting requirements.

Mr Abrahams, of Newcastle upon Tyne, said yesterday that he was unaware of the law. He admitted that he “gifted” large sums of money to Ray Ruddick, a builder who works for him, and to Janet Kidd, his secretary, to give to Labour on his behalf.

The party now faces having to forfeit the £381,850 donated by Mr Abrahams via the pair over four years. The party may also face a substantial fine.

Mr Watt also revealed in his statement that Mr McCarthy was also involved. Labour was informing the solicitor last night of its intention to name him to the press. Mr Watt said: “I believed at the time [of the donations] my reporting obligations had been appropriately complied with. As a result of press coverage over the weekend, I sought legal advice on behalf of the Labour Party. I was advised that, unbeknown to me, there were additional reporting requirements.”

An expert in political funding said that the party was likely to be ordered by the Electoral Commission to surrender the donations to the Exchequer. Mr Abrahams risks criminal charges over his failure to disclose his role in the donations. Mr McCarthy, as his solicitor, may also be questioned.

Mr Abrahams said yesterday that he was not aware that donations made via a third party had to be fully declared. He told the BBC: “I didn’t have the rule book in front of me when I suggested the donations.” He insisted that there was nothing “untoward” involved, other than his desire to avoid publicity.

Mr Ruddick has given five cheques totalling £196,850 to Labour since 2003. Mrs Kidd made six donations amounting to £185,000.

Labour MPs were told of Mr Watt’s resignation by Harriet Harman, who declared a personal donation from Mrs Kidd towards her campaign to become the party’s deputy leader.

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