According to a report in today's Daily Mail, in October 2002 Labour declined to accept a second gift of £100,000 from Desmond.
However, a spokesman for Desmond denied the report and said the matter was being taken up with the highest levels of the Daily Mail.
The story marks another chapter in the long-running battle between Desmond and arch rival Associated Newspapers. The battle has seen a war of words erupt between the two, with Desmond labelling Associated chief Lord Rothermere "arrogant" and vowing that he would not be beaten by his rival.
The war has become heated as Desmond tried to rattle Associated with his much-talked-of plans for a London evening newspaper to rival the Evening Standard.
Desmond, whose businesses include the porn magazines Asian Babes, Big Ones and Skinny & Wriggly, was reported by the Mail to be furious at the donation snub.
Some 18 months earlier, Desmond's publishing company Northern & Shell had a six-figure sum initially accepted by Labour. This led to protests from many Labour MPs, with one prominent female politician describing the payment as "tainted".
Prime Minister Tony Blair had given his approval to the donation and signalled he was happy with the boost to his party's funds. Downing Street even took the rare step of issuing a formal statement defending the donation.
"Political parties have to raise money. The Prime Minister does not see anything improper about this donation at all," the statement said.
The original gift was accepted shortly before new legislation, which would have obliged Labour to declare it to the Electoral Commission immediately. This led to allegations that the party tried to "bury" the news, which was "leaked" to the press in May 2002.
Desmond has been a guest at Number 10 and senior figures from the part were present at the newspaper proprietor's 50th birthday party at the Roundhouse in North London.
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