THE Labour Party has denied it is hanging on to hundreds of thousands of pounds donated to it by North-East property developer David Abrahams, despite Prime Minister Gordon Brown calling the donations illegal.

Mr Abrahams, who was at the centre of a huge political scandal last year, said the money he channelled to the party through middlemen has still not been returned.

Mr Abrahams, 63, from Gosforth, Newcastle, said he still did not know who officially owned the money he had donated, despite the Prime Minister promising it would be returned.

However, Labour Party officials said the money has simply been set aside in a bank account until a police inquiry into the donations issue is complete, and said the party had no intention of keeping it.

In November, it emerged he had given more than £500,000 to Labour through intermediaries.

Gordon Brown said the gifts were unlawful and not properly declared, and detectives are carrying out a wider investigation. The row cost Labour General Secretary Peter Watt his job.

Mr Abrahams has been donating money to the party for nearly 40 years, and it was not until 2003 that he began to use middlemen.

Labour deputy leader Harriet Harman was questioned in the Commons after she accepted £5,000 from a woman in Newcastle, which was traced back to Mr Abrahams.

He said: "There is some sort of dispute as to what is going on with my money. It might end up in court. The rightful ownership is in limbo right now."

A Labour Party spokesman said: "There is no scenario whereby the Labour Party will end up keeping this money.

"The Labour Party has arranged to place these donations in an escrow (third party) account pending the conclusion of the police investigation and all other proceedings concerning this money."