A clash between police investigating the cash for honours affair and the Government escalated last night after the Attorney General reserved his right to veto a prosecution.
Detectives are said to have growing confidence that they have established a trail linking the granting of peerages to the raising of funds. But senior police figures are reportedly worried at the involvement of Lord Goldsmith, Tony Blair's close ally, in the decision whether to prosecute the Prime Minister.
The Attorney General formally "superintends" prosecutors, deciding what is in the public interest, while at the same time advising the Government.
Opposition MPs want him to follow the example of Ken Macdonald, Director of Public Prosecutions, and stand aside.
But Lord Goldsmith last night refused to rule out an involvement. "There are a small number of cases where my personal consent is required," he said. "I have always made decisions in the public interest, in the interests of justice and absolutely independently out of apolitical interest."
He added: "We need to wait to see whether the police produce a file for the Crown Prosecution Service, what it is about and what issues there are to consider."
Scotland Yard is investigating Labour and Conservative fundraising activities and any possible links to subsequent nominations for peerages.
Lord (Michael) Levy, Mr Blair's fundraiser, has been twice questioned in recent months and is one of three figures to have been arrested. Mr Blair himself is due to be interviewed, possibly under criminal caution, within weeks.
Among documents police are studying is an email on honours from Jonathan Powell, Mr Blair's chief of staff, which says: "ML will not be happy about this."
The shadow Attorney General, Dominic Grieve, said he would be "staggered" if Lord Goldsmith personally took the decision to prosecute fellow politicians. "I think it is inevitable that he will not be able to take these decisions himself," said Mr Grieve.
Angus MacNeil, the Scottish Nationalist MP for Na h-Eileanan an Iar, who triggered the complaint, has said it would be "both foolish and unforgivable" for Lord Goldsmith to be involved in this particular case, given his close links to the Prime Minister.
"It is with some alarm that I hear the Attorney General is to involve himself with a matter where there is such an obvious conflict of interest. He must instead publicly declare he will maintain a healthy distance, as would befit anybody with a relationship with the Prime Minister.
"The police, as far as I have seen, have run a very professional investigation. This ethic, it would seem, could be compromised by the chief law officer for England and Wales, the Attorney General himself. Lord Goldsmith was made a peer by Tony Blair in 1999, just two years before becoming Attorney General.
"To involve himself in this case, given his personal links to Tony Blair, would be foolish and unforgivable.
"The Attorney General must therefore abstain from this case, as is standard legal practice when a personal relationship exists and where his impartiality might be reasonably questioned."
Mr MacNeil added: "This case, especially, needs a cordon sanitaire ensuring that anybody involved with any possible prosecution has no other relationship with central figures in the case."