Peter Hain will be interviewed as a suspect within days by police investigating secret donations to his deputy leadership campaign.
The former cabinet minister will be questioned under caution about more than £100,000 in gifts reported late to watchdogs, in apparent breach of election law.
It is the most dramatic development so far in the Scotland Yard inquiry into Labour Party funding.
The interview, likely to take place in Mr Hain's Wales constituency rather than at a London police station, comes after weeks of witness statements and painstaking inquiries.
Mr Hain resigned as Work and Pensions Secretary in January when the Electoral Commission referred the late donations to police. He is said to be "in a bad place" over the donations affair.
The timing of Mr Hain's interview will cause an extra headache for Gordon Brown as he tries to fight off questions over his leadership and the future direction of Labour.
Mr Hain's status as a suspect means there is a possibility that he could be charged if police believe there is enough evidence to proceed. It is understood detectives want to interview him under caution because, as candidate, he was ultimately responsible for all donations.
All who gave money in secret to Mr Hain's campaign, including the diamond dealer Willie Nagel and Isaac Kaye, a businessman with links with the pro-apartheid National Party of South Africa, have been interviewed as witnesses.
Mr Hain denies any wrongdoing and insists he had no knowledge of the £103,000 in donations received by members of his campaign team.
The gifts were filed to the Electoral Commission four months after the deputy leadership contest ended. Around £50,000 was channelled through a virtually unknown think tank, the Progressive Policies Forum.
The wider police inquiry into Labour funding is said to have "months" to run. The investigation was triggered after it emerged that a property developer, David Abrahams, used a series of go-betweens to secretly give cash to Labour. It was extended to Mr Hain when the minister revealed that some donations had not been reported by his campaign staff.
Harriet Harman was told last week she will not face a police inquiry into her acceptance of £5,000 from one of Mr Abrahams' associates.
Metropolitan Police acting commander Nigel Mawer is leading the "proxy donations" inquiry.
Mr Hain is said to be very "gloomy" and has described living through a "Kafkaesque nightmare". Sources close to him declined to comment last night.Reuse content