ED BALLS, the schools secretary, used Damian McBride, the disgraced spin doctor, to smear ministerial rivals and advance his own ambitions, a Downing Street whistleblower has claimed.

In an explosive new twist to the e-mail affair, a No 10 insider has revealed that Balls was the mastermind behind a “dark arts” operation by McBride to undermine colleagues.

He claims the education secretary is running a destabilising “shadow operation” inside Downing Street to clear his path for the party leadership if Labour loses the next election.

The insider said: “There is now an operation within an operation at No 10 and it answers to Ed Balls.”

Balls’s behaviour has provoked a backlash from ministers, who fear his ambition is distracting the government from fighting the recession. Some insiders believe the shadow operation threatens to destroy Labour’s hopes of winning the general election.

The whistleblower, who has had a ringside seat on the power struggles inside No 10, claims that Balls:

— Engineered McBride’s move from civil servant to special adviser
— Repeatedly protected McBride when colleagues called for him to be sacked
— Was in constant contact with McBride, sending him up to 20 e-mails a day
— Instructed McBride to brief against cabinet rivals
— Exploits a weekly “strategy” meeting, which he chairs at Downing Street, to shore up his power base.

The whistleblower claims the prime minister is “strangely naive” about Balls’s activities: “He doesn’t see what’s going on. He unwittingly helps Ed by sidelining the ministers Ed sees as a threat.”

All the claims are denied by Balls, who labelled them “completely fabricated and malevolent nonsense”. A spokesman for Brown also dismissed the claims.

Senior Labour figures have confirmed there is widespread anxiety about Balls’s activities. The revelations will fuel concern that the government is in terminal decline, with senior ministers more worried about positioning themselves for life after defeat than about rescuing the economy.

The whistleblower, who has never spoken to the media before, was prompted to speak out through loyalty to Brown and the Labour party. He was angered by an interview given by Balls last week in which he distanced himself from McBride, who was forced to resign over plans to spread scurrilous rumours about senior Tories.

“In that interview, Ed called Damian ‘Mr McBride’ as if he barely knew him. In fact, Ed was running McBride. It was Ed who first spotted McBride’s talent, Ed who was behind his appointment as a special adviser and Ed who made sure he stayed in the job. Recently, McBride has been working almost entirely for him,” the whistleblower said.

Investigations by The Sunday Times have revealed that before the e-mail scandal, at least eight senior government figures urged Brown to dismiss McBride amid concerns that he was a liability. They included Lord Mandelson, the business secretary; Harriet Harman, the deputy Labour leader; Alastair Campbell, the former spin doctor; Lord Carter, the former No 10 strategy chief; Douglas Alexander, Labour’s election supremo; and two other Downing Street officials, David Muir and Nick Stace. It is understood Gus O’Donnell, the cabinet secretary, also raised concerns.

According to the insider, on each occasion Balls protected McBride, persuading Brown he was too valuable to lose: “Even before we got to Downing Street there were discussions about whether it was wise for McBride to come too. Some thought he should stay at the Treasury. But Ed blocked it.”

Balls, who has worked alongside Brown for 15 years, has made little secret of his ambition to become chancellor, saying only a month ago in an interview that he would “love” the job. Publicly he has claimed to have no “plan” to become party leader.

The insider claims Balls used McBride to help clear his path, “instructing” the spin doctor to brief against colleagues who could be a threat. Among his alleged targets were Alexander, David Miliband, the foreign secretary, and Jacqui Smith, the home secretary. He claims Balls hopes to replace Darling in the next reshuffle.

The whistleblower revealed that Balls was given the chairmanship of a weekly “strategy” meeting inside No 10 as a “sop” after the return of Mandelson to government. Regular attendees include Tom Watson, the junior cabinet minister, Charlie Whelan, political director of Unite, the UK’s largest trade union, and, until his resignation last week, McBride. Liam Byrne, another cabinet minister, also plays a prominent role but is not regarded as part of Balls’s “shadow operation”.

The whistleblower accused Balls of using the meetings to further his own agenda.

There is no suggestion Balls was aware of McBride’s plans to spread scurrilous rumours about David Cameron, the Tory leader, and George Osborne, the shadow chancellor. But Labour figures smeared by McBride believe the education secretary was behind their treatment.

A spokesman for Balls said: “These allegations are completely fabricated and malevolent nonsense without any foundation in fact. The only fact is that Ed Balls and Liam Byrne have jointly chaired a meeting on Wednesday afternoons at the express request of the prime minister.

“Other than that, Ed has spent all his time trying to do his best for children and young people. He has always acted in the best interests of the Labour government.”

A spokesman for Brown rejected the allegations as “absurd and preposterous”, denying that Balls had instructed McBride to brief against ministers. He said there was “nothing unusual” in the level of e-mail correspondence between Balls and McBride.

Last night it emerged that Ray Collins, Labour’s general secretary, had attended a meeting to discuss the setting-up of a website for attacking prominent Tories. However, Collins denies any knowledge of the McBride smear e-mails. A complaint about last week’s coverage of the Damian McBride affair was made by Frances Osborne to the Press Complaints Commission. That complaint was resolved after The Sunday Times agreed not to republish Mr McBride’s untrue smears in relation to Mrs Osborne and to remove specific references to them from our website.

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