Downing Street has rejected allegations that Tony Blair acted improperly in backing a Labour Party donor bidding to take over a Romanian steel company.

Shadow Cabinet Office minister Tim Collins has called on head of the civil service to investigate any wrong-doing by the prime minister in the latest "cash for access" row.

However, Downing Street has dismissed the renewed claims, saying the PM has been promoting British business.

Officials moved swiftly on Monday to try and damp down the row over revelations that Blair wrote a letter of support to the Romanian government supporting the sale of the country's nationalised steel firm, Sidex, to the Indian-born steel tycoon and billionaire Lakshmi Mittal, who gave Labour £125,000.

Number 10 defended the decision saying the company was registered in the UK and employed 100 people, and it was just one of many similar letters written on behalf of UK firms to countries including Russia, Bulgaria and the Czech Republic.

However, the parent company involved in the row, LNM Group, is registered in the UK, rather than the Dutch-registered LNM Holdings which was responsible for buying Sidex.

The row centres on a draft agreement by the firm and the Romanian government for the £300 million deal which was made two days after receiving the letter on July 23 last year.

The letter had been requested by Britain's ambassador in Bucharest, which was supported by the Foreign Office, arguing it would send an important signal at a time when the Romanian economy was beginning to open up to outside investment after decades of communist rule.

An extract of the letter was released by officials who said the wording had been decided by the Foreign Office and was returned unchanged. The prime minister was not aware that the company was owned by a Labour donor when he signed it and that it had taken "all of 30 seconds".

"This should send a very positive signal to investors and businesses in Britain and more widely," it said. "Together with the measures you are taking I hope it will stimulate new interest by British business in Romania."

"I am delighted by the news that you are to sign the contract for the privatisation of your biggest steel plant, Sidex, with the LNM Group," Blair wrote.

"I am particularly pleased that it is a British company which is your partner. And it will, I hope, set Romania even more firmly on the road to membership of the European Union, an objective of which the British government remains a staunch supporter."

The Conservatives said the lines between party and government were becoming blurred.

"This latest case comes as no surprise. It shows the problems caused when the lines between party and government are blurred, as they consistently have been by this Labour government," said Collins.

"Today's revelations are just the latest in a long line. This is a problem of Labour's own making, as their obsession with looking after their own takes priority over delivering on their promises".

Collins has written to the head of the civil service, Sir Richard Wilson, asking him to look into allegations of improper actions by the prime minister. He also called on the government to publish the original communications between the ambassador, the Foreign Office and Downing Street "so that the appearance of impropriety can be cleared up".

But Downing Street officials argued that the row implies that companies making donations to political parties should not request help.

"The assumption is if a company donates to any political party it is exempt from support of its government," said the spokesman.

Speaking in Senegal on Sunday, the prime minister denied any link between the donation and the letter.

"If people have got a complaint to make let them make it, but this is just Enron chapter 55, I suspect," Blair said. "For any government you have got to have rules that are open and transparent."

"If anybody has got any evidence that they haven't been observed let them bring it forward."

LNM also denied any link between the donation and the purchase of Sidex.

But Plaid Cymru said the intervention on behalf of LNM was in contrast to the government's refusal to help when Corus axed 6000 jobs.

Adam Price, the party's trade and industry spokesman, told BBC Radio 4's Today programme that the intervention was "extraordinary".

"I think it is a very extraordinary set of circumstances where a British prime minister is intervening in the strongest possible terms on behalf of a company based in a Caribbean tax haven which is actually a competitor to the British steel industry, which is undermining British jobs and British products overseas.

"I really fail to see where a legitimate British interest is in this case. Clearly the prime minister doesn't recognise a real British business when he sees one. The only sense in which this is a British business is that the owner has a house in Hampstead," said Price.