As Downing Street is hit by a further series of "cash for favour" rows, senior Labour figures have backed state funding for political parties.

In a Times interview deputy prime minister, John Prescott, gave high profile backing to state funding. "I think the only system under which you can be properly accountable is state financing with set limits of expenditure and advertising," he told the newspaper.

Labour Party chairman, Charles Clarke, yesterday admitted that the public could perceive there is a relationship between party policy and donors.

"If funding comes from individuals or companies and the government takes a decision in relation to that organisation, the argument can always be asserted that there's a relationship between the two things," he said.

Labour peer Lord Haskins criticised the decision to aware a £32 million small-pox vaccine contract to Powderject, a company whose chief executive is a Labour donor. Rival companies have complained that no formal tendering process was used.

Downing Street rejected claims of favouritism, saying that the deal with Powderject had the endorsement of Nigel Crisp, the most senior civil servant in the Department of Health.

The spokesman denied that BAe Systems had been treated favourably when Tony Blair visited his Czech counterpart to discuss an arms deal.

The prime minister was "battling for British jobs and British prosperity and it would have been a dereliction of duty if he hadn't" said a spokesman.

Meanwhile, Formula One boss Bernie Ecclestone is said to be considering donating more funds to the Labour Party.