Tessa Jowell

Ministers have rejected claims that they are undermining the independence of National Lottery cash distributors by seeking to halt controversial grants.

The board of the Community Fund, one of five bodies responsible for handing out lottery cash, was reported on Sunday to be close to resigning en masse after coming under pressure over a controversial grant.

A £340,000 award from the Fund to the National Coalition of Anti-Deportation Campaigns was suspended in August after pressure from home secretary David Blunkett and culture secretary Tessa Jowell.

The NCADC had accused Blunkett of "colluding with fascism" and described Labour as the "height of evil", prompting Home Office concern that lottery cash was being used to undermine its crackdown on illegal asylum seekers.With a final decision on the award expected shortly, the Fund is reported to have received legal advise that there are no grounds to withdraw the grant.

And ahead of a meeting with Jowell later this week, there appeared to be a concerted effort underway to warn the culture secretary against trying to influence the decision.

"The board fears that the Department for Culture, Media and Sport is likely to tell them not to give the grant this week," a source told the Observer. "But the board is likely to all resign if that happens, on a matter of principle. The pressure is enormous, yet we are supposed to be independent of government."

However, a spokesman for the DCMS said the board was not being pressurised to reach a particular decision on any individual grant.

"That is not the case. We do not have the power to direct the distribution or awarding of grants - we are not in a position to impose any improper pressure," he said.

"Our duty is to ensure that distributors have all the measures in place to award a grant in a right and proper manner. It is not to sway them one way or another - they have always operated at arm's length."

Meanwhile, the Community Fund is on Monday expected to begin reviewing round 5000 websites belonging to groups awarded more than £100,000 as it checks for any other awards that could be potentially embarrassing.

And in a bid to ensure that controversial awards do not undermine lottery ticket sales, ministers are considering a plan to allow players more say in how the good causes cash is spent.

The public could be given the chance to tick a box on the back of the ticket to indicate particular causes that they would like their money to support.