The think tank set up in memory of the late Labour leader John Smith broke the laws governing charities by getting involved in party politics, the Charity Commission has ruled.

The commission, which completed a 17-month investigation into the organisation closely linked to the Prime Minister Gordon Brown, voiced concern that the Smith Institute strayed too far from its educational remit by hosting events at 11 Downing Street and by issuing material of a party political nature.

However, the commission concluded that there was "no evidence" to support an allegation that Mr Brown, who was chancellor during the period in question, used the institute to "further his political aspirations".

The think tank has always been closely associated with the prime minister. One of his oldest friends, Wilf Stevenson, is its director and Ed Balls, Children's Minister and one of Mr Brown's closest advisers, found a berth there as a research fellow before becoming an MP in 2005. It is run by Lord Murray Elder, a friend of Mr Brown, and has financial backers of the prime minister on its board of trustees.

The Conservatives have in the past attacked "nakedly partisan" literature produced by the institute and complained that it played an active part in supporting the Labour party. After its investigation, the second inquiry into the charitable status of the think tank, the commission has recommended that the trustees improve their governance.

The report found a number of instances "where the balance and neutrality of the institute's work were compromised by a party political association".

It highlighted "evidence of unchallenged party political comments being made at institute events by politicians and also party political statements made by or on behalf of the institute".

The commission concluded that this "combined with the predominant involvement of Labour Party politicians in the institute's activities, compromised the institute's independence".

Andrew Hind, chief executive of the Charity Commission, said: "Trustees of charitable think tanks have a responsibility to ensure the political neutrality of the work they do. However, the trustees did not adequately manage the risks posed to the independence and reputation of the institute. It was vulnerable to the perception that it was involved in party politics - never acceptable for a charity."

Greg Clark, shadow charities minister, said: "The commission makes it clear that the Smith Institute did act in a party political way that was wholly inappropriate for a supposedly independent charity."

Paul Myners, deputy director of the Smith Institute, said the report demonstrated a "fundamental lack of understanding" of think tanks.