Tony Blair's resignation honours list will be vetted by a Parliamentary watchdog, as are other honours lists, Downing Street has confirmed.
Sir Alistair said resignation honours were not needed
Prime ministers traditionally get some discretion in rewards when they leave.
But Downing Street has agreed that the House of Lords Appointments Commission should vet the list, MPs were told.
The Commons Public Administration Select Committee had previously attacked Mr Blair's "vague assurances" that it would be allowed to do so.
Harold Wilson's resignation honours - the so-called Lavender List in 1976 - caused a scandal after they rewarded some businessmen who were felt to be against the Labour Party.
Addressing MPs on the Public Administration Select Committee on Tuesday, former "sleaze watchdog" Sir Alistair Graham suggested it would be better to scrap resignation honours altogether.
"We do not need them and, as we know from a previous Labour prime minister, what you do with the resignation honours list can tarnish your reputation," he said.
"I have no doubt the prime minister, being to some extent a keen student of history, will be aware of difficulties that can arise in relation to resignation honours lists."
In a report last year, the committee said the Lords Appointment Commission should have "clear and unequivocal" responsibility to vet resignation honours lists.
Committee chairman Tony Wright told MPs on Tuesday he had been informed that Downing Street had reached agreement with the commission for the list to be "treated in the same way as other lists".
Sir Alistair, the former chairman of the Committee on Standards in Public Life, also criticised the effects of the cash-for-honours investigation and the halting of the Serious Fraud Office probe into a BAE deal with the Saudis.
He said he felt "personally affronted" by the decision to stop the SFO probe, as he had given lectures abroad, at the request of the Foreign Office, on Britain's anti-corruption measures.
And he said Labour's decision to accept multi-million pound loans to fund its 2005 election campaign was a "clear breach" of the spirit of party funding legislation which Mr Blair had introduced, he said.
The House of Lords Appointments Commission is made up of senior politicians from all parties and is in charge of vetting nominations for peerages.
Last March it blocked Priory clinics boss Chai Patel's nomination to be a peer.
The cash-for-honours inquiry began after it emerged that secret loans had been made to Labour before the 2005 general election, and that some lenders had subsequently been nominated for peerages.
The probe was widened to include the other main parties. All involved deny any wrongdoing.
A file is now with the Crown Prosecution Service which will decide whether anyone will be charged.