Cabinet minister Peter Hain sensationally quit the Government this afternoon over his failure to declare more than £100,000 in donations and loans to his failed campaign to become Labour’s deputy leader.

The move came as it was revealed a police criminal investigation has been launched into the donations.

The Work and Pensions and Wales Secretary had always insisted that his failure to declare the gifts to his campaign had been an oversight rather than any attempt at a cover-up.

He said he would be standing down from the Government “to clear his name”.

Mr Hain won only lukewarm support from cabinet colleagues, and Gordon Brown said his future would depend on the outcome of investigations by parliamentary and election watchdogs into his conduct.

Downing Street said the Prime Minister had accepted Mr Hain’s resignation, and an exchange of letters was published this afternoon.

Mr Brownwrote in his letter: “This is the right and honourable thing to do.” He added that Mr Hain was putting the country’s interests before his own.

Mr Hain’s decision to offer his resignation to the Prime Minister came after the election watchdog the Electoral Commission announced it was referring the affair to the Metropolitan Police.

The outgoing minister said this afternoon: “I severely and seriously regret the mistake in declaring donations late.

“In view of the Electoral Commission decision today, I have no alternative to resign my post.”

He said he would continue to support the Government and described it as an honour to serve as a minister.

He also thanked his wife Elizabeth and his family for their support, adding: “I will co-operate with the police and any other authorities.”

A Scotland Yard spokeswoman said: “We can confirm that the Met has today received a formal referral from the Electoral Commission in connection with potential offences under the Political Parties and Referendums Act 2000 regarding donations received.

“An investigation will now begin by detectives from the Specialist and Economic Crime Command.”

The Electoral Commission said it had referred the case to the police following a “thorough review” of the £103,000 in gifts and loans to Mr Hain which he declared only after the statutory time limit had been exceeded.

A third police investigation following the cash-for-honours affair and donations made by North East property developer David Abrahams is a major blow to Gordon Brown and his efforts to run a sleaze-free administration.

Former public standards watchdog Sir Alistair Graham said Mr Hain had done the right thing in resigning.

Commons leader Harriet Harman, herself accused of not declaring donations, today hailed Peter Hain as “an excellent colleague and good friend”.

Scottish Labour leader Wendy Alexander is also facing questions over donations to her leadership campaign from overseas sources.

Conservative leader David Cameron said: “It is the right decision but it shouldn’t have happened in this manner.

“We have had a huge spell in one of the most important departments where it hasn’t been led properly.

“He needed to give a convincing explanation otherwise he wouldn’t be able to stay in the cabinet and that didn’t happen. He has made the right decision but it has taken too long.”

Shadow work and pensions secretary Chris Grayling said: “The resignation was inevitable and the right thing to do.”

See today’s Express & Star for full reaction and analysis to Hain’s resignation