Scotland Correspondent Colin Blane: Mr Sarwar faced prison and political ruin

Mr Sarwar, 46, of Pollokshields, Glasgow, pleaded not guilty to two charges of attempting to perverting the course of justice, and Mumtaz Hussain, 41, of Lesmahagow, Lanarkshire, denied one charge. He was also cleared.

Speaking after the nine-week trial, Mr Sarwar said: "This is a great day, not only for myself but for my family and for the electorate in Govan, and for all those who believe in fairness, equality and justice for all.

"I've always maintained from the outset that the allegations against me were false and I am glad that the jury has found me innocent of the charges brought against me.

The BBC's Phil Taylor: "He protested his innocence from the very start"

"Today the truth has triumphed and I have been vindicated. I have throughout this ordeal continued to do my duty to serve the interests of my constituents and I will redouble my efforts to fight for the well-being of all the people in Govan."

Mr Sarwar, the UK's first Muslim MP, also said he would try to resolve the difficulties he had with the Labour Party.

Thursday's verdict is expected to lead quickly to the lifting of his suspension as a Labour MP.

Donald Dewar: Welcomed the verdict

Mr Sarwar was suspended from the Parliamentary Labour Party in June 1997 once it was known he was being investigated by the police.

Scottish Secretary Donald Dewar said: "I welcome the court's verdict.

"This trial must have placed a great strain on Mohammad Sarwar and his family.

"I know that he will be relieved that he can now concentrate on his parliamentary duties."

Mr Sarwar's acquittal comes the week after Labour member for Newark, Fiona Jones, was disqualified as an MP after she was convicted of falsifying election expenses. The party has now been spared a second by-election.

The first charge against Mr Sarwar, elected for Labour in Glasgow Govan at the 1997 general election, alleged he paid £5,000 to Badar Islam, a fringe candidate, for a false statement saying that three other men were out to "destroy" the MP.

Minister was witness

The second charge alleged that Mr Sarwar and Mr Hussain later pretended the payment was a loan, underwritten by a guarantee cheque issued to Mr Hussain.

The MP maintained that the payment to Mr Islam was a loan.

Two other charges of fraud against Mr Sarwar were dropped during the trial.

Among the witnesses giving evidence in the trial, was Agriculture Minister Nick Brown, Labour's former chief whip.

Scottish Labour Party General Secretary Alex Rowley said: "The Labour Party welcomes the end of the long legal process which has hung over Mr Sarwar and the Govan constituency.

"NEC officials who were conducting an inquiry into events in Govan before the case will now be speaking to Mr Sarwar about details which emerged in the course of the case."

Party officials are expected to meet Mr Sarwar at the weekend.

Labour sources said they anticipated the inquiry would be completed as soon as possible.