The Labour Party was paid £183,000 in public money to help officials understand new funding rules shortly before it accepted secret donations.
David Abrahams used other people to make donations
The Electoral Commission gave the party the start-up grant in 2001 and 2002 after the Political Parties, Elections and Referendums Act 2000 came in.
But since 2003 property developer David Abrahams has donated £663,975 to the party under other people's names.
The police are currently investigating these donations.
An Electoral Commission spokeswoman said the grants were given to all political parties.
A total of £700,000 was divided between all parties, proportionate to the number of votes they got in the 1997 general election and the 1999 European elections.
Labour was paid £165,000 in 2001 and £18,000 a year later, according to the Electoral Commission's accounts.
The Conservatives received a similar sum.
The cash was intended to help party officials understand regulations including submitting accounts and declaring donations above £5,000.
The spokeswoman for the Electoral Commission said it would have allowed parties to install new systems or employ new staff.
Under the Political Parties, Elections and Referendum Act 2000, details of any donor making gifts through a third party must be registered and reported to the Electoral Commission.
Mr Abrahams' donations were unlawful because people must use their own names when giving more than £5,000 to political parties.
Prime Minister Gordon Brown has said the party will pay all of the money back, and Labour officials have been holding talks with the Electoral Commission as to how this should be done.