Mr MacDonald has ruled himself out of any role in the case

Attorney General Lord Goldsmith has refused to stand aside despite critics' concern he is too close to Tony Blair.

Mr Macdonald said Lord Goldsmith would advise on whether charges were in the public interest, but said that CPS lawyers would have the final decision.

Police are probing claims, denied, that honours were given in return for cash.

Letters to Cabinet

The probe began after it emerged that some people who gave large, secret, loans to the Labour Party before the last election were subsequently nominated by Tony Blair for peerages.

The investigation has since been broadened to include other parties.

Last week it emerged that most, if not all members of the Cabinet - apart from Tony Blair - at around the time of the 2005 general election had been contacted by police, many getting letters asking them to declare in writing what they knew, or did not know, about the loans.

It is widely expected that Mr Blair will face police questions. Former Conservative leader Michael Howard has already been questioned as part of the investigation.

The final decision in this case will be made by the CPS Ken MacDonald Director of Public Prosecutions

Director of Public Prosecutions Mr Macdonald, a former colleague of Cherie Blair, has ruled himself out of any decision related to the investigation - as has the head of the Metropolitan Police, Sir Ian Blair.

Opposition parties have said Lord Goldsmith, a friend of the prime minister who attends Cabinet meetings, should do the same.

But Lord Goldsmith has said the need for his consent in certain prosecution cases was an "essential legal condition" that could not be avoided.

He has said that, should he be consulted by the CPS on this particular case, he would appoint an independent senior counsel to review the material and advise him on any prosecutions.

Asked whether he felt that was sufficient, Mr Macdonald told BBC Radio Four's Today programme, that the final decision would be made by senior lawyers in the CPS special crime division.

"The attorney general is entitled to be consulted and they will consult with him and he will no doubt express views about the public interest," he said.

"That's commonly done, there's no difficulty about it, it's not political. But the final decision in this case will be made by the CPS."