Health Secretary Alan Johnson has rejected suggestions that he broke any rules covering donations during Labour's deputy leadership contest.
It is claimed £3,334 was given by a man on behalf of his brother-in-law, and the Electoral Commission was not told.
Mr Johnson said he and his team had complied "100%" with the law - checking the donor was legally able to give the money and registering it.
Ahmed Yar Mohammed has denied trying to disguise his campaign donation.
The laws at issue say that all donations should be declared to the Electoral Commission within 60 days, and donations should not be given under someone else's name.
Mr Johnson said the money had been registered with Parliament, the Labour Party and the Electoral Commission.
'Checked and registered'
The Sunday Mirror said Waseem Siddiqui was asked to sign a blank cheque by his brother-in-law Ahmed Yar Mohammed, who is treasurer of Croydon Central Labour Party.
In a statement, Ahmed Yar Mohammed said he asked Mr Siddiqui to write a cheque on his behalf because he was busy travelling.
He said: "I did this in good faith and at no point was it my intention to disguise my donation.
"However, I understand that there has been some misunderstanding about this matter so I am writing to the Electoral Commission to clarify the circumstances behind the donation so that this matter could quickly be resolved."
Mr Siddiqui, 50, told the newspaper he did not know who the health secretary was and he had joined the Labour Party as a student member in March last year, on the advice of his brother.
Following the newspaper report, Mr Johnson said he and his team had fully complied with the law in checking that Mr Siddiqui was on the electoral roll, so legally able to donate the money - and went further in also checking he was a member of the Labour Party.
He said he was very surprised by the claims that the money had not been from Mr Siddiqui: "I'm as surprised as anybody else, but all I can say is that we have followed absolutely the procedures.
"I'm very keen and very interested - more than most people - to find out the truth about where he got the money, but there can be no accusation (that) either me or my team indulged in any kind of impropriety whatsoever."
Mr Johnson also said they had declared the donation, along with all others during his bid to become deputy leader, to Parliament's Register of Members' Interests in May last year, the Labour Party and also the Electoral Commission.
He said it was only in December that they noticed that four donations, including the one from Mr Siddiqui, were not listed on the Electoral Commission's website.
His campaign team and the commission then met to find out why the donations were not appearing on the commission's register but insisted the information had been sent.
Police probe Hain case
He said they were still "looking into whether there were problems at their (the Electoral Commission's) end".
The sports minister Gerry Sutcliffe, who ran Alan Johnson's campaign, said the team had recorded all donations in a transparent way.
"The rules are that he has to be on the Electoral Register, he was. He was also a member of the Labour Party. There was no reason for us to question that donation.
"We were very clear, very open, very transparent in how we recorded these donations, and we felt we met our commitment."
The allegations come days after Peter Hain quit his cabinet posts over a donations row.
Mr Hain resigned as work and pensions secretary and Wales secretary after the Electoral Commission, which is investigating more than £100,000 of undeclared donations to his deputy Labour leadership campaign, passed his case to police.
Shadow business secretary Alan Duncan told BBC News 24, although the accusations did not seem that serious, they were another sign of a government in trouble.
"The problem about this is that it creates a picture of overall decay and decline in the government, it just seems one bad thing after another."
Liberal Democrat frontbencher Norman Baker said: "This is another murky situation which will need to be properly investigated if confidence is to be restored."