Dr Moosa Bin-Shamsher, a multi-millionaire Bangladeshi businessman with worldwide business interests, is said to have offered the cash after being impressed by Tony Blair, the Labour leader, and his team.
But when the offer was detailed to Paul Blagborough, the Labour Party's director of finance, it was turned down on principle because Dr Bin-Shamser has no direct business, residential or political interests in the United Kingdom. Labour has repeatedly criticised the Conservatives for taking money from Hong Kong and other overseas sources with which to fight British general elections.
Frank Dobson, Labour's acting campaign co-ordinator, said: 'We have always opposed the Conservatives taking money from foreign supporters. We have to stick to our principles.
'If we say that about the Tories we have to apply the rules to ourselves. We think that British people believe that it is only right for British money to be spent on British elections.
'We think that's right, and when we form the Government we will change the law so that no British political party can take money from abroad.'
Dr Bin-Shamsher told the People newspaper yesterday: 'I have regularly donated to charities and therefore to want to donate to a party that believes in social justice was a logical step.'