Read about the controversy on Sam Coates's new Westminster blog

Peter Hain is being urged by one of the team involved in his attempt to win the deputy leadership to resign over his admission that he failed to declare £100,000 in campaign donations.

The team member said that the Work and Pension Secretary’s position had become untenable after he disclosed that half the money was originally intended for a fledgeling left-wing think-tank but was instead used to pay off campaign debts.

“He cannot stay in the Cabinet,” the source told The Times. “He should have resigned yesterday but he wants to battle it out.”

Expert View

In the long term, Peter Hain’s career in Government looks over

Greg Hurst, Political Correspondent of The Times

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Q&A: secret donor scandal

Our Political Correspondent analyses the origins of the secret donor sleaze row and its potential implications

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BACKGROUND

• A walking paradox who gave £600,000

• Brown is made to play the fool in stage farce

• Jack Dromey declares he is victim of concealment

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• Q&A: is Peter Hain's ministerial career over?

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The claim came amid further signs of disarray among members of Mr Hain’s deputy leadership campaign, as Parliament’s standards watchdog considered opening an inquiry into whether he had also breached Commons rules by failing to register the donations.

A second minister was dragged into the row as Phil Woolas, who acted as chairman for Mr Hain’s campaign, was blamed privately for running up debts. Another person involved in the Hain campaign described as “bonkers” an eve-of-poll media blitz costing £60,000, including a full-page newspaper advertisement, glossy inserts in two left-wing magazines and mailings to all Labour Party members, and blamed Mr Woolas for the decisions.

A third team member told The Times: “It would be unfair to say that the media blitz was responsible for the overspend. The media blitz, in so far as decisions were taken during the campaign, was expected. The big question is why there was not a proper budget.”

The campaign was originally run by Phil Taylor, Mr Hain’s former special adviser, but midway through was taken over by Steve Morgan, a lobbyist and Welsh Labour activist. The two men have traded accusations in public over who was to blame.

Mr Hain’s long-term future looked in doubt after David Davies, the backbench Tory MP for Monmouth, asked the Parliamentary Commissioner for Standards to investigate Mr Hain’s failure to register the donations with the Commons within the required four-week deadline. The commissioner, John Lyon, was considering last night whether to set up a full inquiry. If Mr Hain were found to be at fault, it could lead to sanctions ranging from an order to apologise to the Commons to, in the most serious case, suspension from the House.

The Electoral Commission, the political funding and elections watchdog, is already investigating whether Mr Hain broke electoral law by failing to register 17 donations amounting to £103,000 within 30 days of deciding to accept them. Both inquiries are likely to examine Mr Hain’s admission that more than half the late donations, amounting to £51,613, were made by an obscure think-tank, the Progressive Policies Forum, on behalf of businessmen linked to Mr Hain.

Mr Hain has admitted that he approached the think-tank to ask for financial help to pay off his campaign debts after the contest in late June, but insisted that this was done with the permission of the original donors.

The Progressive Policies Forum published some pamphlets by Mr Hain in the “pre-campaign” period before the election for deputy leader was officially under way, meaning that donors to the think-tank could support his policies but remain anonymous.

Friends of Mr Hain said that the think-tank was set up by John Underwood, his campaign treasurer, to promote a soft-left agenda as a replacement to a similar organisation, Catalyst. This was squeezed out as trade unions backed a more challenging left-wing movement, Compass, which wanted Jon Cruddas as deputy leader.

Willie Nagel, a diamond broker who lent the Hain campaign £25,000 and gave another £5,000 via the think-tank, came to his rescue yesterday to deny reports that he had not been told that his donations would support the campaign, rather than the forum.

A statement issued by his solicitors, Ashurst LLP, said: “Mr Nagel donated and loaned money to PPF and had no objection that this money be used to support Peter Hain’s campaign.”

Mr Morgan, who ran the Hain campaign in its latter stages, also donated £5,000 to it via the think-tank, rather than directly.

Mr Hain, who declared £82,000 in campaign donations previously, blamed “administrative failings” for his failure to register the further £103,000 in grants and a loan.

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