Labour high command made clear last night that it had been assured that all donations from Muslim Friends of Labour were above board as the group faces an inquiry by the elections watchdog into its fund-raising.

Nonetheless, the preliminary probe by the Electoral Commission could prove something of an embarrassment for Gordon Brown and his colleagues given that Muslim Friends of Labour is supposedly established as an unincorporated association, which does not publish accounts or reveal the source of its funding.

Senior Labour politicians have previously attacked such a body, the Midlands Industrial Council, labelling it as "shadowy" for backing the Conservatives in a similar way.

The Herald understands much of the £300,000-plus donated to the governing party from Muslim Friends of Labour came from a fund-raising dinner in Glasgow. Reports yesterday said the commission was investigating whether or not Labour had broken the rules on the disclosure of donations.

The main backer behind Muslim Friends of Labour, established in 2005 in Glasgow, was said to be Imran Khand, a locally based entrepreneur.

It was suggested that by giving to the group rather than directly to the party, he was able - until now - to keep his identity as a Labour benefactor a secret.

Mr Khand has been described as a close associate of Mohammad Sarwar, the Labour MP for Glasgow Central, who is chairman of Muslim Friends of Labour.

The Herald tried unsuccessfully to contact Mr Sarwar yesterday but he was quoted as saying that it was the board of Muslim Friends of Labour, which had decided not to name names on who the group's donors were.

However, one leading Muslim Labour figure was said to be "staggered" at how much money they were giving the party.

A Labour spokesman said Muslim Friends of Labour was "an association made up of Labour members and supporters who do important work for the Labour Party both in fund-raising and in communicating our message to the Muslim community".

He went on: "Once it came to light that Muslims for Labour was not a registered third party, the Labour Party asked them to register as such. This they willingly agreed to do.

"Muslims for Labour agreed to register with the Electoral Commission as a matter of business practice.

"It was able to assure the Labour Party that all donations had come from permissible donors under the rules of the Political Parties and Referendum Act."

This means from a person on the electoral roll or an organisation registered in Britain.

The commission confirmed that it was looking into the donations made by the Muslim Friends of Labour, stressing that "inquiries are at a preliminary stage".

Depending on the outcome of these initial investigations, the watchdog will then decide whether or not to launch a full-scale probe.

If it were to do so, then this would be the first sleaze inquiry Labour would have fallen foul of under Mr Brown's leadership.