Gordon Brown faces a troubled summer struggling to retain authority in his own heartland after he failed in a last-ditch attempt to prevent his leader in Scotland resigning.
Wendy Alexander's departure sparked a desperate search for a new Labour leader in the Scottish Parliament. She stood down after breaking rules on donations, even though officials had advised that the 10 donations that had already been published did not need to be declared to the parliament. It emerged last night that Mr Brown tried in vain to persuade Ms Alexander to stay.
The Prime Minister's difficulties deepened following the news that Glasgow East Labour MP David Marshall is to resign, sparking a difficult by-election against a buoyant Scottish National Party (SNP).
The fresh uncertainty in Scotland, where Labour lost its hold on power a year ago, will intensify the pressure on Mr Brown as he attempts to claw back a widening poll gap between his party and the Conservatives.
Ms Alexander, a close Brown ally and the sister of Cabinet minister Douglas Alexander, had faced a one-day ban from the Holyrood parliament after failing to register donations to her leadership campaign last year. But she opted to resign her post as Labour leader, rather than endure what she described as a "vexatious" SNP campaign against her.
In an emotional resignation statement at Labour's Scottish HQ in Glasgow, Ms Alexander said she had been the victim of a "partisan" decision by the parliament's Standards Committee and claimed there had been a "breach of natural justice". She added: "I judge this issue has become too much of a distraction from the real issues that should dominate our public life."
Mr Brown said Ms Alexander had helped to "rebuild" the Scottish Labour Party after its election defeat last year, and praised "her commitment to devolution and her part in establishing the Scottish Parliament".
Opponents claimed the departure was a body blow to Mr Brown's authority, while Tory insiders said it would raise questions over the future of other Labour figures, including the deputy leader, Harriet Harman, who is also under investigation over campaign finances.
Nicola Sturgeon, the SNP deputy leader and Scotland's deputy First Minister, said: "While Wendy Alexander has been the author of her own misfortune, there can be no doubt that the information on her illegal campaign donation could only have come from within the inner circles of the Labour Party. Decay from within is characteristic of the decline of the New Labour project, and Ms Alexander's resignation is a symptom."
The Scottish Conservative leader Annabel Goldie said: "This resignation is a further body blow for Gordon Brown and Labour, as they lurch from one crisis to another. Only the Scottish Conservatives offer a credible opposition to the SNP in Scotland."
Ms Alexander became the second Scottish Labour chief to fall on the issue of finances, following the 2001 demise of Henry McLeish.
Her departure arose over donations to her campaign to replace Jack McConnell as leader last August. Although she was ultimately elected unopposed, she raised donations to fund her campaign. After she was initially told wrongly by clerks to the Standards Committee that it was unnecessary to declare the donations, Ms Alexander updated her register with details of 10 donors, who each gave about £1,000 to her campaign.
Last Thursday, the Scottish Parliament's Standards Committee decided, on a split judgement, to recommend that she be suspended from parliament for one day. Although Ms Alexander was talked out of resigning on Friday, following conversations with the Prime Minister and other close colleagues, she finally decided to go yesterday.
A close ally said that the decision reflected her unhappiness with the strains of the job rather than an admission that she had done anything wrong.
Professor John Curtice, of Strathclyde University, said Ms Alexander's leadership was "not much of a success". He told BBC Scotland her performances against Alex Salmond in First Minister's Questions had been criticised as weak, and she had contradicted Gordon Brown on the need for a referendum on Scottish independence.
Ms Alexander will remain an MSP but her deputy, Cathy Jamieson, has taken over as temporary leader of the Labour group in Parliament.
Labour chiefs were last night preparing for a by-election in Glasgow East after Mr Marshall's decision to stand down. Mr Marshall was not available for comment.
A career in politics: Astute politician who fell over campaign finances
Wendy Alexander is part of a dynasty in the Scottish Labour Party – a woman who made it to the top, despite the macho traditions of politics in her country. Yet, for the second time in a brief career, Wendy Alexander has consigned herself to the political wilderness.
It is less than a year since, at the age of 44, she finally became head of the Labour Party in the Scottish Parliament, a position many had expected her to reach years before. Along with her younger brother, Douglas, now a Cabinet minister, Ms Alexander had been a rising star in Scottish Labour politics for almost three decades.
She had made many astute political choices – from becoming a protégée of Scotland's original First Minister, Donald Dewar, to allying herself with the influential cadre surrounding Gordon Brown. A period as a researcher to the then-Labour MP George Galloway gave her contacts across the Labour spectrum. But the elder Alexander was widely regarded as an influential heavyweight in her own right. By the time she finally got the top job, Labour was in opposition.
Ms Alexander may have embarrassed Mr Brown over her demand for a referendum on independence, but it was persistent problems with her campaign finances that ultimately dragged her down and, it appears, have ensured she will not make another return.