Liam Fox allies dismiss adviser Adam Werritty as 'Walter Mitty' figure

Fightback begins but civil servants suggest Defence Secretary's days are numbered

Liam Fox's aides turned on Adam Werritty last night, describing him as a "Walter Mitty figure" who took advantage of the minister's friendship. In a clear attempt to distance the Defence Secretary from Mr Werritty to save his political career, "friends" of Mr Fox said it was "clear that Mr Werritty was masquerading as something he was not".

Mr Fox himself said last night that he was the victim of a "witch-hunt" but further questioned were raised last night amid reports that a wealthy, right-wing group of funders provided the money to pay for Mr Werritty to travel with the minister. At the same time, military commanders and senior civil servants warned that it was becoming untenable for Mr Fox to continue in his job. They also expressed grave concern that the Defence Secretary appeared to have used Mr Werritty as an adviser in formulating policy.

One of the armed forces' highest-ranking officers said: "This can't go on for much longer. We know there are other things which will come out. He is not dealing properly with his in-tray with all that's going on." The aggressive briefings by Mr Fox's advisers echo the briefings given by Downing Street under Tony Blair about David Kelly after he committed suicide. Both made the same reference to "Walter Mitty".

Mr Fox's aides briefed journalists: "It is clear Werritty was masquerading as something he was not. He was hanging around and popping up in places trying to be part of a group. This guy is clearly a Walter Mitty figure." And a senior Whitehall official responded: "He is prepared to take advice from a Walter Mitty figure rather than us. There are 40,000 jobs going in defence and we have this circus going on."

Mr Werritty was indirectly paid by wealthy backers who raised funds which enabled him to act as Mr Fox's adviser, according to a BBC report citing – anonymously – one of the donors.

Such an arrangement is thought likely to be in breach of the ministerial code if Mr Fox knew of it because it bypassed the civil service, but it was last night unconfirmed. Among the group was, according to one report, Michael Lewis, who donated to Dr Fox's 2005 campaign for the Tory leadership.

Mr Lewis, 52, a South Africa-born tycoon was, until four years ago, deputy chairman of the British Israel Communications Research Council (Bicom). After leaving Bicom as deputy chairman, Mr Lewis continued to donate to Bicom, which has admitted paying for Mr Werritty to attend a conference in Israel in 2009.

He was flown at Bicom expense to Herzliya in February 2009, where he watched Dr Fox give a speech on European-Israeli relations. Bicom's former director of communications Lee Petar set up a lobbying firm called Tetra Strategy, which introduced Mr Werritty to the venture capitalist Harvey Boulter – a move which led to a controversial meeting between Dr Fox and Mr Boulter in Dubai this year without MoD officials present.

Mr Lewis, who runs the blue-chip fashion retailer Foschini, donated £5,000 to Liam Fox's leadership campaign, £10,000 to the Tory Party and £13,822 to Atlantic Bridge, a charity run by Mr Werritty and established by Dr Fox to further links between America and Britain.

Sir Gus O'Donnell, the Cabinet Secretary, is due to report on his findings into the pair's relationship "within days" – and Whitehall sources said his inquiry would be much more wide-ranging than initially anticipated. Downing Street has also decided the report must be published in some form, making it more difficult to save Mr Fox should Sir Gus imply he has breached the ministerial code.

Major-General Julian Thompson, a former commander the Royal Marines, said yesterday: "The worry is, even if Mr Fox is not sacked, he will be damaged and not in a position to carry out the robust defence of the forces needed at these times."