Political Correspondent Carolyn Quinn: Mr Mandelson insists he has done nothing wrong

The prime minister is standing by Mr Mandelson - but has ordered a probe into whether he should have declared the money.

Mr Mandelson used the cash to buy a house in London more than two years ago, while in opposition.

When the Trade Secretary was appointed to his current job in the summer, he was informed that the Department of Trade and Industry would be investigating Mr Robinson's financial dealings.

Geoffrey Robinson has been criticised over his offshore trusts

The paymaster-general has twice been censured by watchdogs for failing to declare interests in offshore trusts.

It was agreed that Mr Mandelson and other ministerial colleagues should play no part in the DTI investigation.

But the minister failed to declare the loan from Mr Robinson and Tuesday's Guardian newspaper says it should have been declared.

'No conflict' - Mandelson

The Mirror newspaper said Mr Mandelson still owes his colleague £332,375, having not paid back any money since the general election.

But Mr Mandelson has denied any conflict of interest.

In a statement, he said he had agreed that he would take no part in the DTI's consideration of the matter.

"I do not believe that accepting a loan from a friend and fellow MP was wrong. There is no conflict of interest," he said.

He said the loan, made in October 1996, had always been intended as a "short-term arrangement" and that he had paid back £40,624.68. He was in the process of paying off the rest with the help of his mother.

'Private agreement'

The prime minister's office has also insisted the minister did not break any codes of conduct.

Downing Street issued a statement, saying the ministerial code only requires ministers to ensure that they are not placed in a situation where they might be facing a conflict of interest.

Tony Blair's spokesman said Mr Mandelson sufficiently insulated himself against any conflict of interest by extracting himself from the investigation into Mr Robinson. The spokesman said the loan was a private agreement between the pair.

But the prime minister was only told of the loan last week, when enquiries started to arise about it.

Mr Blair has now asked Cabinet Secretary Richard Wilson to investigate whether there is a potential conflict of interest.