Sarwar claims pounds 5,000 was a loan

The anger of Labour activists in Glasgow Govan started to boil over yesterday as their MP, Mohammad Sarwar, dug himself further into political controversy with an admission that he handed over pounds 5,000 to an election opponent.

Mr Sarwar spent the morning with his lawyer and a statement was issued in which he "vehemently denied" doing anything wrong. He intends pressing on with legal action against the News of the World for alleging that money was paid as a bribe.

The millionaire MP is said to have told Labour whips on Sunday about the payment to Badar Islam, but insisted that it was loan to a Punjabi brother in financial difficulty and not "compensation" to Mr Islam for running a low-key campaign.

On Monday, when he dismissed the newspaper charge as "totally false", he made no mention of the payment. The plot was further muddied yesterday with a report that it was in part a gift to Mr Islam for a tip-off about a plot to plant drugs in Mr Sarwar's cash and carry warehouse.

The first contact between the Mr Sarwar and Mr Islam, who polled 319 votes under his Independent Labour badge, was not until 11 May and therefore could not have influenced the poll, according to party officials.

Following a call by Donald Dewar, Secretary of Sate for Scotland, the Strathclyde Fraud Squad added the bribery claim an investigation into late applications to the Govan electoral roll and allegations of malpractice by Sarwar supporters.

Today Nick Brown, the government Chief Whip, will report to Labour's National Executive on the affair, including his questioning of Mr Sarwar. Labour is conducting further inquiries but is unlikely to take any decision on the MP's fate until the police work is over. Mr Sarwar returned to London late yesterday.

While the circumstances surrounding the election of Britain's first Muslim MP are an embarrassment to Tony Blair and the London leadership, the effect on the febrile Govan constituency party could be catastrophic. For some local activists, Mr Sarwar's resignation and a by-election would be a relief, were it not for the fact that the SNP could win the seat.

"People in Govan Labour Party feel angry and let down," a party source told The Independent. After being split down the middle over the selection battle between Mr Sarwar and former MP Mike Watson, it was pulled together in the run-up to the election, largely by Margaret Curran who buried differences to become Mr Sarwar's agent.

"Margaret knocked heads together and ran a professional campaign. We won Govan despite the history of the selection row, allegations about the roll and a strong SNP challenge. Now all that has been lost and discredited," said the source.

Mr Islam, meanwhile, remained elusive. On top of the pounds 5,000 the entertainments promoter and gambler got from Mr Sarwar, he is also said to have collected a large sum from a tabloid newspaper.

The News of the World was yesterday sticking to its story and ready to defend itself in court. It claimed to have "further information" but would not comment on a suggestion that it has a tape of the Sarwar-Islam meeting requiring translation.

A job to humour Labour backbenchers

Labour MPs last night elected a former front-bench spokesman on home affairs, housing and Northern Ireland to the somewhat daunting task of keeping more than 300 government back-benchers happy and contented, writes Fran Abrams.

Clive Soley, the member for Ealing, Acton and Shepherd's Bush, will be the new chairman of the Parliamentary Labour Party, a job which now carries more importance than at any time in history.

Mr Soley was elected to the post by 229 votes, while his only challenger, Roger Stott, received 93 votes.

Mr Stott, the member for Wigan and also a former Northern Ireland spokesman, had stood on an apparently anti-leadership platform.