Ed Balls has rejected claims that disgraced former Co-op Bank chair Paul Flowers personally approved a £50,000 donation to him.
The Shadow Chancellor denied meeting Mr Flowers to discuss party funding, describing claims by Deputy Prime Minister Nick Clegg that he received the donation as a "smear".
"I’ve never had a meeting with Paul Flowers, a telephone conversation, exchanged an email ever, nor have I ever received any donation from him or the Co-op Bank," Mr Balls told the BBC's World at One programme.
"I’ve been to a dinner which he was also invited to, I think I’ve spoken at a reception at a party conference and he was also on the platform, but other than that I’ve had no contact with him at all.
"So for Nick Clegg to allege and smear that I have received £50,000 from Paul Flowers is a lie, and I hope he will withdraw that."
Mr Flowers, a Methodist preacher, was forced to step down as chairman of the Co-op after he was filmed buying cocaine and crystal meth.
Mr Balls did not deny receiving a donation to his office from the Co-op Group, but refuted the suggestion that it was personally approved by Mr Flowers.
"I have never in my life had a conversation with Paul Flowers about that matter or any other financial matter in any one-to-one meeting or email."
Photographs emerged this week of Labour leader Ed Miliband with Mr Flowers and other Co-op bank chiefs at a reception at 10 Downing Street in February 2010.
Read More
Mr Flowers' home was searched by police this week as part of an ongoing investigation into the 63-year-old's alleged drug use.
Mr Clegg used his weekly LBC Radio show this morning to accuse Mr Balls of accepting the donation from "slightly odd characters" at the bank.
He said: "Every week we’re here we’ve got another series of question marks about who runs and funds the Labour Party.
"There are some very searching questions to be asked and I am sure the Labour Party will want to both account for itself but also make sure that [...] they’re not in hoc to some slightly odd characters at this bank."
Mr Flowers has not directly addressed the allegations, but accepted he had done some stupid things during a difficult year.
He stood down as Co-op chairman in June when a new management team was brought in to tackle a £1.5 billion capital shortfall.
