Gordon Brown has been warned that he faces trouble from former Labour chairman Peter Watt and donor David Abrahams over illegal payments made to the party.

Watt, who resigned over the issue, is reported to be ready to "come out fighting" and clear his name.

According to the Guardian, Watt has said he is not prepared to be the scapegoat for the £600,000 in donations which property developer Abrahams made through four intermediaries.

His defence is that he inherited the longstanding arrangements and could not have been expected to know they were not legitimate.

It is reported that Watt's allies are angry that the prime minister forced a police investigation by declaring the payments "illegal".

"He was trussed up like a chicken. A lot of people in the party feel he was thrown to the wolves," a friend is reported to have said.

Meanwhile Tony Blair's former strategy adviser Matthew Taylor said Brown's apparent attempt to shift the blame onto Watt had been "inept".

In an interview for the Guardian, he said: "It was not unfair but inept, in as much as it doesn't look particularly attractive if you are going around trying to shift responsibility."

And to add to the pressure, Abrahams told the Jewish Chronicle that things will get "dirty" if the government continues "hammering" him.

Abrahams claimed that he used third parties to donate the money to avoid accusations of being part of a "Jewish conspiracy".

But he later said the comments had been misreported, and that the intermediaries had been used only to protect his anonymity.