William Hague admitted today he should never have claimed Lord Ashcroft would pay "tens of millions of pounds" more in tax when he was pushing for the Tory donor to be awarded a peerage.
The shadow foreign secretary insisted he had had no knowledge of the tax position - despite putting it at the heart of his case for giving Michael Ashcroft a seat in the House of Lords.
He had made the claim in a letter to the then prime minister Tony Blair in 2000 as he sought to secure the peerage.
Lord Ashcroft had twice previously been refused, partly because of concerns he was a tax exile.
He revealed earlier this month that he had remained "non-domiciled" for tax purposes, meaning he does not pay UK tax on his overseas earnings.
Mr Hague, now David Cameron's de facto deputy, approved the deal at the time but insisted today it had never concerned tax matters.
He told the BBC he became aware at the beginning of this year of Lord Ashcroft's tax status - before the Tory leader was informed.
However, correspondence released to a Commons select committee by the Cabinet Office showed Mr Hague's explicit approval of the deal had been sought at the time.
It had come in 2000 amid confusion between the Political Honours Scrutiny Committee and Sir Hayden Phillips, the mandarin who oversaw the award of peerages at the time, over the undertakings Mr Ashcroft had given.
Despite signing an affidavit affirming he would become a permanent resident, it later emerged during the negotiations over his peerage that he had no intention of paying full UK tax on his overseas wealth.
Tory MP James Arbuthnot, the then chief whip, wrote to Sir Hayden confirming Mr Hague was "satisfied that the action adequately meets the terms of Michael Ashcroft's undertaking to take up permanent residence in the UK".
Mr Hague maintained today he did not "go into the detail" of the arrangement and said that - 10 years on - he had not asked about the tax element "as far as anyone involved can recollect".
"I made clear to James that I was going to be satisfied with any agreement which implemented the original undertaking and which the government officials dealing with it and the honours scrutiny committee were happy with," he said.
But one of the members of the Political Honours Scrutiny Committee today accused Lord Ashcroft of failing to honour his undertakings from 2000.
Baroness Dean of Thornton-le-Fylde, a Labour peer, said she had been shocked to learn earlier this month that Lord Ashcroft was non-domiciled for tax purposes.
"We thought that the undertakings that he had given, clear and unequivocal, to us... were honoured," she said.
Speaking to the Public Administration Committee, at a one-off hearing into Lord Ashcroft's peerage, added: "It looks like the commitments and undertakings given were not carried through."
Letters detailing the negotiations in 2000 showed the Political Honours Scrutiny Committee had repeatedly asserted that Lord Ashcroft should become a permanent resident.
However, it did not appear to make its expectations about his tax status clear until later in the discussions, when Lord Ashcroft claimed that had not been his understanding.
He subsequently took up long-term residence - rather than permanent residence - enabling him to become a "non-dom".
Mr Hague revealed today he had gone to Lord Ashcroft at about the turn of this year to tell him the pressure to reveal his tax status had reached the point where he would have to go public.
He said he was "not sure" how long Lord Ashcroft delayed before talking to the party leader.
Foreign Secretary David Miliband said there had been "a decade of deception at the top of the Conservative Party", repeating his call for Mr Cameron to sack Lord Ashcroft as Tory deputy chairman.
Liberal Democrat home affairs spokesman Chris Huhne said it was "utterly unbelievable" that Mr Hague had not been aware of the tax implications of the negotiations.
"Mr Hague is guilty of a cynical cover-up for a shabby decision which has cost British taxpayers more than £100 million," Mr Huhne said.
"William Hague is not fit for any role in government, let alone that of foreign secretary. Lord Ashcroft must now meet his £100 million tax bill."
But the Tories stepped up their criticism of the Public Administration Committee's inquiry into Lord Ashcroft, which comes on the eve of a general election.
Shadow leader of the Commons Sir George Young demanded an inquiry into the leak to the BBC last night of the Cabinet Office letters that were officially released by the committee this afternoon.
Lord Ashcroft and Mr Hague declined to give evidence, despite being invited. So did Lord Hurd, the Tory peer and only other surviving member of the Political Honours Scrutiny Committee from 2000.
Ian Liddell-Grainger, one of the three Tory MPs who are members of the Public Administration Committee but boycotted the hearing, accused its chairman Tony Wright of turning it into a "political mouthpiece" for the Government.
"If he ends up as Lord Wright of Cannock Chase, I think a lot of our concerns will have been proved right," he said.
Mr Wright said the committee had never avoided issues that were "politically difficult" and that today's hearing had thrown "important new light on an issue that has remained unresolved for many years".Reuse content