The Prince of Wales's closest aide, branded a bully who enjoyed lavish perks and privileges, was last night at the centre of fresh controversy over his continuing royal role.

Despite resigning as the Prince's personal assistant amid a hail of criticism, Michael Fawcett will still work for his former royal employer on a freelance basis.

A report into malpractices within the Prince's household detailed how Mr Fawcett bent royal rules forbidding the acceptance of gifts from outsiders, but was found "not guilty" of fiddling.

Among his perks was a £3,000-a-year club membership with a £1,000 credit for entertaining, a Rolex watch, numerous bottles of champagne and much more.

But the Prince's "indispensable" servant was not sacked and resigned with an undisclosed cash severance package and an agreement to work as his freelance events manager.

Sources estimate that it could have cost the Prince as much as £1m for a pay-off for Mr Fawcett to ensure his continuing loyalty as newspapers queue up to offer him vast sums to tell his royal secrets.

Mr Fawcett, 40, who rose from humble footman to become the Prince's right-hand man, left with a glowing reference.

The Prince said: "I am enormously grateful to Mr Fawcett for all he has done over many years and I wish him well with his new business."

The resignation came as the Prince's private secretary, Sir Michael Peat, assisted by barrister Edmund Lawson QC, published a critical report into Charles's household.

The Prince, who was in Bulgaria as the report came out, issued a statement which said: "The review does not make comfortable reading in some parts, but I accept full responsibility and all the recommendations."

The inquiry uncovered no evidence of serious wrongdoing but expressed misgivings about some staff practices.

Sir Michael insisted the report was not a whitewash. He said: "The cover may be cream but it's certainly not a whitewash." The inquiry found that:

* No proper records of gifts to the Prince were kept. The Prince sold unwanted gifts for charity, and gave away smaller gifts to staff;

* No evidence of staff selling gifts without authorisation was discovered;

* There was no improper conduct over the collapse of the theft trial of former royal butler Paul Burrell;

* An allegation of homosexual rape made by a member of staff against one of the Prince's closest aides should not have been treated so dismissively.