Steel chief gave cash to Labour

Tony Blair was dragged deeper into a cash-for-favours row today as Indian steel tycoon Lakshmi Mittal admitted paying cash to Labour before the last general election.

He said he donated £125,000 on 23 May, two weeks before polling day on 7 June. Published accounts recorded the money being handed over on 26 June.

The earlier date casts fresh doubt on Downing Street's claim that Mr Blair had no knowledge of the donation when he agreed to help Mr Mittal seal a £300million business deal in Romania. The Tories demanded that Mr Blair clear up the affair by publishing letters sent to No 10 by the Foreign Office and the British Embassy in Bucharest.

Downing Street claims that Mr Blair only agreed in July to help Mr Mittal because he was asked to do so by civil servants and diplomats.

In a letter to Cabinet Secretary Sir Richard Wilson, Conservative shadow cabinet office minister Tim Collins wrote: "If this is indeed the case I am sure you will be happy to publish the original communications between the Ambassador, the Foreign Office and Downing Street so that the appearance of impropriety can be cleared up."

The Government must also answer a series of questions from Welsh Nationalists about meetings between Mr Mittal and Peter Mandelson, during his time as Trade Secretary.

The row, nicknamed "Steelgate" at Westminster, centres on negotiations by Mr Mittal's company LNM Group to buy Romania's biggest steelmaker, Sidex.

On 23 July last year, after the deal was agreed but before the contracts were signed, Mr Blair wrote to Romanian prime minister Adrian Nastase urging that the sale should go ahead, and saying that he was "particularly pleased that it is a British company which is your partner". Two months earlier, on 23 May, Mr Mittal had given £125,000 to Labour's re-election campaign. The donation was not made public until August, and Mr Blair insists that he had no knowledge of it when he agreed to give his endorsement to the business deal.

However, Mr Mittal was already a known Labour backer who had given £16,000 to the party in April 1997. His wife gave money to the election campaigns of disgraced former minister Keith Vaz.

Mr Mittal today dismissed suggestions that his company had little connection with Britain. He lives in London but holds an Indian passport, and only 100 of his firm's 125,000 staff are understood to be based in the UK.

Mr Mittal said: "London has been the main office of the group. All our services come from Britain - lawyers, accountants, financial services. British companies work for us. And when we do business with other countries, it stimulates interest in Britain."