The Committee on Standards and Privileges said Mr Mandelson should face no further punishment. But it accepted a ruling that he broke the ministerial code when he failed to register a pounds 373,000 loan from Geoffrey Robinson. The MPs said he "ought to have given full and accurate information" to the Britannia building society but accepted he did not act dishonestly.
When he borrowed pounds 150,000 from the Britannia to buy a pounds 465,000 house in Notting Hill, west London, Mr Mandelson failed to reveal details of a pounds 40,000 mortgage on a flat in Clerkenwell, a pounds 35,000 mortgage on a house in Hartlepool and the loan from Mr Robinson. At the time, Mr Mandelson was a backbench MP earning pounds 43,000, plus a pounds 10,000 annual housing allowance.
Details of the events that led the former minister to borrow from his Labour colleague emerged in a critical report from the Committee on Standards and Privileges. Mr Mandelson told the committee he discussed the loan with Mr Robinson in the spring of 1996 and went house hunting with him during the summer, but still hoped his mother would provide the money he needed to buy the house. It was only when he told her, after he had applied for a mortgage, that he needed pounds 373,000 that she became reluctant and he agreed the loan with Mr Robinson.
He also revealed that he had spent between pounds 40,000 and pounds 50,000 on renovations to the house, which he recently sold for more than pounds 750,000.
Mr Mandelson said in an oral hearing before the committee on 18 May that he did not think of his building society application after he resigned. He told the committee: "It did not matter, did it? I was incinerated. I received a lot of comfort from people at the time who were my cushion and support.
"The technical reason why I resigned was because, in terms of the Ministerial Code, I had allowed the appearance of a conflict of interest to be created."
In her report, the commissioner, Elizabeth Filkin, emphasised rules requiring MPs to be honest and open. She said the mortgage form Mr Mandelson filled in was "incomplete" and "incorrect".
However, some sources suggested Mr Mandelson also misled the committee. He told them he first agreed the Robinson loan in mid-October when in fact Mr Robinson paid a deposit of pounds 23,000 in early October.
In March, Mr Mandelson pointed in his defence to a press release from the Britannia dated 8 January, which concluded that his mortgage application was accurate. In fact, the building society had subsequently learnt the information was inaccurate and had commissioned an independent firm to investigate whether the files should be handed to the police or the Law Society's fraud officer. The new inquiry for the Britannia concluded that Mr Mandelson did not deliberately mislead it, but added that his solicitor, Stephen Wegg- Prosser, handled the matter "sloppily".
The committee met 10 times before agreeing its report. Although it did not fully endorse Ms Filkin's findings, one source said this was because she had not seen the building society's independent inquiry when she wrote her report.
The Tory MP John Redwood described the report as "devastating. Mr Mandelson has now been proved utterly unsuitable to return to the Government or to play any part in Labour's campaigns," he said.