Lord Levy, the former Labour donor who was arrested by police investigating allegations of cash for honours, tried to block a parliamentary committee from publishing a letter by a Labour donor at the heart of the affair.

Sir Gulam Noon, the millionaire known as the 'curry king' who was one of four people allegedly offered a peerage in exchange for secretly loaning money to the Labour party, wrote to a Commons select committee setting out his side of the story.

In his letter, which is expected to make embarrassing reading for Labour, Noon said that the party had solicited a loan, rather than a donation, from him. The letter, which will be released on Wednesday when the public administration select committee publishes its report into the affair, will revive speculation about whether Labour was seeking loans in the run-up to the 2005 general election in an attempt to circumvent strict funding rules on donations.

Critics say this would have broken the spirit, though not the letter, of the law. Loans secured on commercial terms did not then need to be declared. All donations above £5,000 have had to be declared since 2000.

Levy said last night that he was unhappy with the letter and he indicated that he had made clear to the Commons committee through his lawyers that he would have been happier if the Noon letter had remained secret. A spokesman for Levy said: 'We respect the rights and wishes of the committee to publish whatever they feel is necessary. As we made clear to the committee, there were parts of the letter we disagreed with.'

The intervention by Levy shows how all sides are still fighting to preserve their reputations after the conclusion in the summer of a police investigation into the cash-for-honours allegations. Assistant commissioner John Yates spent 16 months investigating whether Labour had offered peerages to Noon, Sir David Garrard, Barry Townsend and Chai Patel in exchange for peerages. Four people, including Levy, were arrested and Tony Blair was interviewed three times. The Crown Prosecution Service announced in July that no charges would be brought.

Yates, who faced a grilling by the public administration committee in October, will escape criticism in the report.

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Source: The Observer (Nicholas Watt, political editor)