Mr Osborne said he had sought to be "open and transparent"

He said he had sought advice which he had taken to suggest the money did not need to be declared in Parliament's Register of Members' Interests.

The money was given to Conservative Central Office, which declared it to the Electoral Commission, and was then used to fund Mr Osborne's office.

There was a "big distinction" between his and Peter Hain's case, he added.

Advice sought

He said he was still waiting to find out if the �487,000 should have been included in the Register of Members' Interests - and had sought advice from the Commons authorities at the time.

"The advice that we got as we understood it was that we didn't have to declare donations to the central party - the Conservative Party - which is used to employ Conservative Party staff on Conservative Party salaries and Conservative Party contracts," he said.

We went ourselves to the House of Commons authorities before this was in the headlines George Osborne

He said he declared any direct support to his office - but said the question was whether donations should be declared twice, if they went through central office, which had already declared them to the Electoral Commission. "These donations were declared. We've always tried to be open and transparent," he said.

"We went ourselves to the House of Commons authorities before this was in the headlines, before anyone asked us any questions about it.

"And if the authorities say the advice is this then of course we will comply with the advice."

'Great job'

Meanwhile Work and Pensions, and Welsh Secretary Mr Hain has received some support from Prime Minister Gordon Brown, who told The Sun newspaper he was doing a "great job" and it would be a "great loss" if he had to leave the Cabinet.

But Mr Brown added that ultimately it was up to the Electoral Commission and the Parliamentary Commissioner for Standards to decide Mr Hain's future.

The Electoral Commission and Parliamentary standards commissioner are looking into Mr Hain's failure to declare �103,000 of donations towards his failed campaign to become Labour's deputy leader last summer.

Mr Hain has apologised and blamed poor administration by his campaign team, but there have been questions over some of his funding arrangements.