LONDON (Reuters) - Prime Minister David Cameron pledged on Sunday to investigate why a senior Conservative party fundraiser offered exclusive access to him in return for donations of 250,000 pounds a year.
Cameron said the actions of co-treasurer Peter Cruddas, caught on film by undercover reporters, had been "completely unacceptable", as he sought to limit the damage to his centre-right party.
Cruddas resigned soon after the Sunday Times newspaper published video of him telling journalists posing as international financiers that the contributions would enable them to have input into public policy and ask Cameron "practically any question you want".
The affair threatens to undo Cameron's efforts to shake off his party's image of being too close to the interests of business and the rich as Britain undergoes an austerity programme to cut its budget deficit.
"This is not the way that we raise money in the Conservative party, it should not have happened," said Cameron. "I will make sure that there is a proper party inquiry to make sure this can't happen again."
The disclosures capped a torrid week for the Conservative-led coalition government after a backlash over a budget that cut tax rates for top earners while freezing tax allowances for pensioners.
While there were also tax cuts for lower earners, the budget went down badly with many Britons, giving the impression the government was looking after the wealthy and cared little for those suffering rising unemployment and falling incomes as the economy struggles to recover from recession.
The funding issue is embarrassing for Cameron, who promised before coming to power in May 2010 to curb corporate lobbying, saying it was the "next big scandal waiting to happen".
The revelations were "utterly disgraceful", Treasury Minister Danny Alexander, a senior member of Cameron's Liberal Democrat coalition partners, told BBC TV.
The opposition Labour party called for an independent inquiry into what access had been sought and obtained, and demanded Cameron make a statement about the affair to parliament.
"It can't just be an internal Conservative party investigation sweeping it under the carpet," said Labour leader Ed Miliband.
"This is very serious for our democracy because we need to have the highest standards in our public life. And what we have seen today falls way below the standards that British people have a right to expect," Miliband added.
The disclosures will add urgency to talks between all three main parties in coming weeks on reform of political funding.
Previous reform attempts have foundered on the Conservatives' reluctance to cap donations from wealthy individuals and Labour's desire to avoid limits on contributions from unions.
The Sunday Times reporters had posed as Liechtenstein-based fund managers who wanted to develop contacts with Cameron and other ministers on behalf of their Middle East investors.
Cruddas told them the access would be "awesome for your business", adding some of the party's bigger donors had enjoyed dinner with Cameron and his wife Samantha in their private apartment at his Number 10 Downing Street office.
He advised them that a donation of 100,000 pounds was a minimum but that 200,000 or 250,000 pounds was "premier league".
With that kind of funding "things will open up for you", he said. "You do really pick up a lot of information."
When they met Cameron, he said, "within that room, everything is confidential and you will be able to ask him practically any question that you want".
He suggested they could even influence party policy, saying: "If you are unhappy about something, we will listen to you and we will put it into the policy committee at Number 10."
The paper reported Cruddas as saying he was sure there were "ways to work around it" when told by the undercover reporters that the money came from a foreign wealth fund. Foreign donations are banned under British election law. He suggested they establish a subsidiary company in Britain, the paper said.
Conservative party deputy chairman Michael Fallon said Cruddas had only been recently in the post and had been boasting.
"No donation was actually formally offered, no donation was accepted and it certainly wouldn't have been accepted on that kind of basis," Fallon told Sky TV.
"I need to get you off this idea that anybody can give money to the Conservative party and start dictating policy. That doesn't happen," he said.
In a resignation statement, Cruddas, founder and executive chairman of London spread betting firm CMC Markets, said he had not consulted any politicians or senior party officials before meeting the bogus financiers and denied that donors would have been able to influence policy or gain undue access to politicians.
"I deeply regret any impression of impropriety arising from my bluster in that conversation," said Cruddas, himself a major donor to the Conservative Party.
"Specifically, it was categorically not the case that I could offer, or that David Cameron would consider, any access as a result of a donation," he said.
"But in order to make that clear beyond doubt, I have regrettably decided to resign with immediate effect."
Editing by Janet Lawrence and Alistair Lyon