Tory leader David Cameron said the Prime Minister should tell the Work and Pensions Secretary to address the issues surrounding his Labour deputy leadership campaign or face the sack.

Mr Hain is defying resignation calls after dismissing suggestions he tried to cover up donations to his failed bid as "absurd" in a statement on Saturday.

But Mr Cameron insisted questions remained over the funding arrangements, suggesting that the Public Policies Forum (PPF), a mysterious think tank via which donations were channelled, could have been a "front". "If he goes on like (Saturday) I think his time will be up," Mr Cameron said. "It's no good, when all these questions are being asked, just sort of come out and read a statement and scurry back indoors again."

Gordon Brown has stood by Mr Hain, with Downing Street confirming he continues to have the Prime Minister's "full confidence".

Speaking on BBC One's The Andrew Marr Show, Mr Cameron said: "If I was in the Prime Minister's shoes I would say to Peter Hain, 'look, you've got to get out there, you have got explain yourself, you've got to answer all these questions. And if you can do that then maybe your job is safe, but if you can't then you will have to go.' I think that's where we ought to be. Instead, I sense that Gordon Brown is dithering over this issue."

Mr Hain has been under fire over his failure to report £103,000 of donations to his deputy leadership campaign until this week.

Meanwhile, the Tories were embroiled in their own party funding row as it emerged shadow chancellor George Osborne had not fully declared donations to his office. A document obtained by the Mail on Sunday revealed that £487,000 given to the Conservative Party was used to support Mr Osborne's office at the donors' specific request. But the shadow chancellor has not reported the support of the seven backers in the Parliamentary Register of Members' Interests.

The Tories, who have piled pressure on Labour over recent party funding embarrassments, including Peter Hain's current controversy, were accused of "hypocrisy". Labour MP Kevan Jones said: "George Osborne should come clean on who is bankrolling his office. This is yet another example of the hypocrisy of the Tory party, who lecture others on probity and donations yet have myriad scams disguising the true funders of their party."

But Tory leader David Cameron threw his weight behind Mr Osborne, insisting his situation was entirely different to Mr Hain's. He said: "The two cases are completely different. The money that we are talking about with the Conservative Party, all these donations are declared and published by the Electoral Commission. Go to their website, they are all there."