Lady Thatcher's calculated and defiant piece of snook-cocking came after Mr Cash, the MP for Stafford, had been effectively ordered by Alastair Goodlad, the Chief Whip, to stop taking funding for his European Foundation from Sir James Goldsmith.
This angered some of the Conservatives' hard-line anti-Brussels MPs and seems to have persuaded Lady Thatcher to intervene. But in what amounted to his first clear rebuke for Lady Thatcher after enduring a series of unhelpful interventions in the party's running battles over Europe, a furious Mr Major hit back.
He declared that, though everyone had a right to decide to do what they wished with their money, "Lady Thatcher must answer for her own actions. Personally I would have given the money to the Conservative Party".
After meeting Mr Cash, who has been a thorn in the Prime Minister's side for the past four years, Lady Thatcher issued a warm and public "Dear Bill" letter to the rebel MP. Mr Cash himself had been at the centre of a furious row within his own party this week over the fact that Sir James Goldsmith has been a major donor to the European Foundation, which Mr Cash chairs, and which provides the hardline Euro-sceptic MP with research assistance in the House of Commons.
Mr Major was said to be incandescent at the gesture towards one of his principal Euro-sceptic tormentors.
Mr Cash was bitterly attacked in public by pro-European fellow MPs and in private by senior ministers for accepting money from the billionaire tycoon, whose Referendum Party is threatening the fragile majorities in up to 20 Conservative held seats.
Mr Cash, who only yesterday morning had been accused dismissively by Kenneth Clarke, the Chancellor, of "pure gesture politics" subsequently announced that while he had done nothing wrong in accepting the money he would now stop doing so.
Lady Thatcher wrote: "The work of the European Foundation in researching information about European issues is vital both to the Conservative Party and to the country. It is well known that the advocates of European federalism have never lacked access to funding. Not so those who seek to preserve British sovereignty. It is therefore all the more important that your foundation should continue its activities. As we have discussed, I am making a donation to help it do so."
Mr Cash last night expressed his great gratitude at what he called a "substantial" donation from "one of the great prime ministers of our times". He refused to disclose the amount, but said that he had also received several "smaller but significant donations" since the argument about his funding from Sir James had blown up.
Lady Thatcher's help for Mr Cash came as the Chancellor savaged him for taking money from the leader of a party which was going to put up candidates against the Conservatives.
Defending Mr Major's leadership over Europe, Mr Clarke, the most prominent and least equivocal pro-European left in the Cabinet, went out of his way on BBC Radio to attack the Stafford MP.
He said Mr Cash's Bill on a European referendum was "totally incompatible" with the approach adopted by the Cabinet and the party.
"It was a gratuitous Ten Minute Rule Bill. It hadn't a snowball's chance in Hades of becoming law. It was pure gesture politics in order to curry favour with a man who it turned out afterwards was financing the organisation behind Mr Cash," Mr Clarke said.
"Mr Cash in some newspapers has been turned into a statesman, which I don't think he is. He sounded after this incident suitably repentant."