Wendy Alexander claimed to have been "vindicated"after the Electoral Commission decided not to call in the police over the illegal donation to her Labour leadership campaign fund.

But the Scottish Labour leader, whose campaign team admitted the donation broke the law, last night expressed "deep regret" that the money was ever accepted.

"This has been a salutary and bruising experience," she said, admitting mistakes had been made.

She added, however: "I will not walk away from my party or the people of Scotland while there remains a job to be done in restoring social justice to the top of the political agenda, fighting poverty and making Scotland a fairer, more prosperous place for everyone to live."

While the watchdog ruled that Ms Alexander had failed to take "all reasonable steps" to ensure money raised by her team came from permissible sources, it was found that she had taken "significant steps" to follow the rules.

The commission felt it was not "appropriate or in the public interest" to report the matter to the procurator-fiscal.

The Labour leader's political opponents, however, insisted last night that Ms Alexander had not been fully cleared - and pointed out that the procurator-fiscal has still to decide whether Ms Alexander broke the law by failing to register her campaign donations at Holyrood.

First Minister Alex Salmond said: "This is tantamount to a not proven verdict when there has already been a guilty plea.

"She is not out of the woods yet - she has a way to go before she is cleared on this issue.

"Her leadership is in extremely serious difficulties and this does not get her off the hook." More worrying still for Ms Alexander are the suggestions offered by some voices within the party at Westminster that she might be on borrowed time despite the Electoral Commission's decision. While there was much sympathy south of the border, one MP described her as "a dead woman walking".

As well as the decision not to report Ms Alexander over the illegal donation, the commission's two-month investigation also failed to uncover "sufficient evidence" that her campaign team attempted to hide the fact that they had accepted £950 from Jersey-based businessman Paul Green, despite the fact that as a non-UK resident he is banned from making political donations.

Ms Alexander said: "As I have maintained from the outset, there was no intentional wrongdoing on my part and I have now been vindicated by the independent body charged with policing electoral law. I deeply regret that my campaign accepted a £950 donation which it transpired was in breach of the rules and I apologise again to my colleagues, my party and the public."

Ms Alexander also insisted she would not "walk away" from the Labour leadership.

"I came into public life to serve and I intend to continue to serve the people of Scotland as leader of Labour in their parliament."

Lothian and Borders Police last night confirmed that in light of the commission's findings, they would not be pursuing a complaint against Ms Alexander they received from a member of the public.

Alex Neil, the SNP MSP, added: "This is a total whitewash. The credibility of the Electoral Commission is down the drain."

Murdo Fraser, deputy leader of the Scottish Tories, said: "Frankly, the Electoral Commission affair was the least of Wendy Alexander's concerns. The Labour Party in Scotland is in a state of absolute shambles."

The Herald revealed in November how Ms Alexander's campaign team had accepted Mr Green's money, but that it has been registered in the name of the Glasgow-based firm Combined Property Services.

The money was solicited by Charles Gordon, the Glasgow Cathcart MSP, who was forced to resign as Labour's transport spokesman at Holyrood after it was confirmed that the donation broke electoral law.

Mr Gordon later admitted accepting another cheque for £950 from Mr Green in the run-up to last year's Holyrood elections.

Last night, the Electoral Commission revealed they were seeking forfeiture of the cash from the Glasgow South Labour Party.

In a statement, Mr Gordon said: "I reiterate my deep regret that my error prompted a chain of events which embroiled other people." A spokeswoman for Mr Green said that he would not be making any comment.

Meanwhile, the Electoral Commission rejected any suggestions it had been influenced in any way during their investigations and called on all parties to ensure they stick to the electoral rules.

It said: "The conclusions reached by the commission are the result of its independent judgment, following a thorough investigation.

"Extraneous considerations such as political or public opinion have played no part in the process, nor have they played any part in the commission's decision-making."