Mr McDonnell said Labour's link with trade unions was vital

Labour MPs are angry at the proposals in Sir Hayden Phillips's funding review which they say would end the party's "historic link" with the unions.

Sir Hayden has suggested a �50,000 cap on donations to all parties.

But left-wing MP John McDonnell said there had been "absolute fury" among the Parliamentary Labour Party (PLP).

The party's ruling National Executive Council is being convened later to discuss party funding.

'Hidden agenda'

There has been no official word from Downing Street on whether Tony Blair supports a cap on donations.

But Mr McDonnell said it looked as though the prime minister was backing the proposals and suggested his "hidden agenda" was to break the party's link with the trade unions.

We feel we're being sold out John McDonnell

"I think there will be uproar not just among the PLP and the trade unions but also across rank-and-file members of the Labour Party as well," said Mr McDonnell - who has said he will run for the leadership when Mr Blair stands down next year. We feel we're being sold out."

'Cash for honours'

Education Secretary Alan Johnson, the former head of the Communication Workers' Union, also said union ties should be defended and enhanced.

He said they offered "highly regulated, transparent funding from working people".

Sir Hayden was asked by Mr Blair to examine whether agreement could be reached over changes to party funding.

I see no reason why donations from trade unions should be exempt from the cap Sir Hayden Phillips

It followed allegations, denied by all concerned, that honours have been given to people in return for people donating, or lending, money to political parties.

In a memorandum seen by the BBC, Sir Hayden suggests a �500,000 limit on donations from organisations, falling to �50,000 in four years.

He adds: "I see no reason why donations from trade unions should be exempt from the cap."

Trade union members pay a �3 annual levy, which its leaders can then use to help fund the Labour Party.

But Sir Hayden is understood to be suggesting that each union member be registered as an individual donor - which could reduce the influence of union leaders on party policy.

The Times reported on Thursday that Sir Hayden is also recommending a �12.5m spending limit on general elections and giving extra state support to the Liberal Democrats and some smaller parties.

He has also suggested a cap on spending between elections as well and a ban on anonymous bodies donating funds.

It would mean all the main parties would no longer be able to get multi-million pound donations from individual supporters.

All the main parties say they want the process of funding to be more transparent, to help increase public trust in politics.