Osborne drawn into Deripaska row

Nathaniel Rothschild, a scion of the famous banking clan, has revealed that the shadow chancellor George Osborne and the Conservative Party's chief fundraiser Andrew Feldman met the Russian oligarch Oleg Deripaska on board his yacht in the summer and discussed a gift of £50,000 to Tory coffers. Rothschild makes his damaging allegation - donations from overseas residents are illegal - in a letter to the Times today. Worse than this, Rothschild states that Feldman suggested that a way of getting round the law would be for Deripaska to channel the money through one of his British companies.

While Tories accept the meeting took place, they vehemently deny the claim that a donation was discussed, claiming that Deripaska, who made his fortune in aluminum and is Russia's richest man, offered money at a later date. The Conservatives say they did not take up his offer. Donations by overseas residents are illegal, as is using a British company as a proxy to disguise a donation, under legislation passed in 2000.

Said a spokesman: "The allegations made in Mr Rothschild's letter are completely untrue. Both Andrew Feldman and George Osborne deny absolutely that they attempted to solicit a donation from Oleg Deripaska. Nor did they suggest a method by which he could conceal a donation via a British company. They spent a short period of time on Mr Deripaska's boat at the invitation of Mr Rothschild. Donations to the Conservative Party were not discussed with Mr Deripaska."

Rothschild's claims are all the more sensational because of his close connections with the Tories. He has been involved in fundraising for David Cameron and has been a close friend of Osborne since they were at Oxford together. They were even members of the Bullingdon, the riotous undergraduate drinking club, at the same time.

However, he is also a friend of Deripaska and Lord Mandelson. Because of this, many will speculate that the Labour minister is the guiding hand behind the letter. Indeed, the Times says it is understood that Mandelson was aware the letter was being written. Such a move would certainly deflect attention from his own relationship with the Russian billionaire – he was also a guest on Deripaska's yacht Queen K in the summer, when it was moored off the island of Corfu, and has been under fire for having a series of dinners with him while he was Britain's EU Trade Secretary.

Rothschild, 37, is the youngest child of Jacob Rothschild, the 4th Baron Rothschild. While he had something of a playboy reputation in his early twenties, he is now co-chairman of Atticus Capital and is considered a rising star in the financial world.

This new development is the latest in a series of hotly contested holiday tales that have placed Corfu at the centre of Westminster politics. Mandelson is said to have "dripped pure poison" about Gordon Brown when he and Osborne met for a drink at a taverna on the Greek island.