Labour's Scottish leader, Wendy Alexander, quit yesterday amid a series of sleaze allegations in a move that further undermines the authority of Gordon Brown.

Alexander took the decision to resign despite a telephone call from the prime minister urging her to stay.

The 45-year-old Brownite loyalist is likely to be replaced by Andy Kerr, the East Kilbride MSP, who is privately critical of Brown’s meddling in politics north of the border.

The departure of Alexander could lead to Scottish Labour defying Downing Street by calling for an early referendum on independence. Brown is keen to avoid a spread of Scottish nationalism that could in turn trigger antiScots feeling in England.

A senior Scottish Labour source said: “Brown has already lost control of Holyrood. Now, whatever happens, Brown has lost control of the Scottish Labour party. It is a further weakening of his authority.”

Alexander, the sister of Douglas Alexander, the international development secretary, yesterday delivered an emotional resignation statement blaming “vexatious complaints” from the Scottish National party (SNP).

“My pursuers have sought the prize of political victory with little thought to the standing of the parliament. Some may feel they have achieved a political victory but wise heads will ask at what price.”

Her departure is the culmination of seven months of hounding over irregularities in the finances of her campaign to become Scottish Labour leader.

Last November it was alleged that Alexander had received an illegal donation of just under £1,000 from Paul Green, a Jersey-based businessman. A subsequent inquiry by the Electoral Commission cleared her of wrongdoing. However, earlier this month a separate inquiry by the Scottish parliament’s standards watchdog found that she had breached Holyrood rules by failing to declare a series of other donations of about £1,000.

Alexander said the breach of the rules had been technical, and that she had acted in “good faith”. Nevertheless, the assembly’s standards committee ruled she should be punished with a one-day suspension from parliament.

Yesterday, Alexander maintained she had done nothing wrong. “I believe there has been a breach of natural justice and a partisan decision. Nevertheless, the parliamentary process, if not its conclusion, deserves respect.

“This issue has become too much of a distraction from the real issues that should dominate our public life.”

Alexander has long been a close friend of Brown. Both have young children and their fathers were both Church of Scotland ministers.

Her resignation is the end of an era in Scottish politics. She is the last of a generation of Scottish politicians who were allies of Donald Dewar, the first first minister in the Holyrood parliament. Whoever succeeds will have no experience of Westminster politics and will be determined to take a more independent course.

It is understood that Alexander told Brown of her intentions on Friday evening. A Labour source said: “Gordon clearly did not want Wendy to go. But he had to respect her decision.” The frontrunner to succeed her is Kerr, who made his name as the boss of Glasgow council’s binmen, before being elected to parliament. A friend said: “Andy supports a referendum, so the issue is likely to be resurrected. The SNP have cleverly tried to damage us by suggesting we want to deny people a say.”

Alexander’s resignation plunged Scottish Labour into new depths of gloom, with senior figures admitting the party north of the border was now ina “terrible” position.

Friends of Alexander said she was “totally wrung out” following the protracted dispute over donations to her leadership campaign. They claimed she was the victim of a sophisticated political “stitch up” orchestrated by the SNP.

Annabel Goldie, the Scottish Conservative leader, said: “This resignation is a further body blow for Gordon Brown and Labour, as they lurch from one crisis to another.”

The SNP was jubilant at claiming such a high-profile scalp. Nicola Sturgeon, the deputy first minister, said: “Decay from within is characteristic of the decline of the new Labour project, and Wendy Alexander’s resignation is a symptom of this wider malaise.”

There is a danger of further upset for Labour in Scotland. Brown faces another by-election nightmare, following the announcement that David Marshall, the East Glasgow MP, is to stand down because of ill health.

His seat has a 13,507 majority, and would normally be considered safe. However, the SNP is expected to throw huge resources at the seat and Labour sources admit it is vulnerable.

The loss of the seat would bea big embarrassment to the prime minister, after Labour lost its deposit in the Henley by-election, trailing in behind the British National party.

Wendy Alexander’s stormy career

Before her resignation yesterday, Wendy Alexander was the last surviving member of the Labour coterie that pushed through devolution, leading to the creation of a Scottish parliament in 1999.

A protégée of the late Donald Dewar, Scotland’s first political leader, she always seemed destined for the top.

Yet nine months after becoming Scottish Labour leader last September, Alexander, 45, has been felled by a protracted and mind-bogglingly complex squabble over a series of small donations to her leadership campaign fund.

With her diminutive stature, breathless energy and rapid-fire speech, she has been compared to a gerbil on amphetamines.

Despite being well-connected – she is close to Gordon Brown and her brother Douglas is in the cabinet at Westminster – her political career has always been held back by her volatile personality.

Notoriously difficult to work for, Alexander had frequent rows with civil servants and was known for throwing tantrums.

Her first official spokesman quit only six weeks into the job.

Like Brown, she grew up in a manse, and had a career as a management consultant before entering politics in 1997.

Times Recommends

• The day they dropped a bomb on the banks
• Methodist minister sent herself hate mail
• Japanese insect to be used to fight knotweed