The Government today faced demands for an inquiry into Labour's links with collapsed US energy giant Enron and its accountants Arthur Andersen.

Liberal Democrat Treasury spokesman Matthew Taylor called for a Commons inquiry into the party's "extremely close links" with the two firms at the centre of the massive US financial scandal.

He said: "Labour have chosen to build very close links with business on a pretty dubious basis, where they have received money and help on the one hand from businesses benefiting very much from Government policy on the other.

"We know that in the United States Enron used extensive political contacts to seek to further its interests and there is good evidence of the same happening here in the UK.

"Taking on former Labour employees to lobby for a change in gas policy and bingo, gas policy changes; paying for tables at the Labour Party conference and seeking direct contact at the time of the takeover of Wessex Water and bingo, that is approved."

He said Labour's ties with Andersen went even further.

The accountants had been effectively barred from government business for 12 years, since the DeLorean scandal, until Labour came to power in 1997.

Mr Taylor said: "They took the approach of building very close links with Labour - free work on building Labour economic policy between 1992 and 1997, extensive crossover of staff that has continued with Labour in government.

"This free work appears to have paid off because just after the General Election they were brought back into government business and have been absolutely at the centre of what has been happening in government since, and with some very questionable reports that have backed the Labour Government."

Mr Taylor said that an explanation was also needed from the Tory former energy secretary Lord Wakeham - now chairman of the Press Complaints Commission - who was an Enron director and sat on the company's audit committee.

A Labour Party spokesman said: "The Liberal Democrats' allegations are completely without foundation.

"The Labour Party has not received any donations from Enron.

"It is a matter of public record, both from our accounts and previous newspaper reports, that Enron Europe has bought tickets for dinners and sponsored one event. The last event they attended was in April 2000.

"The Labour Party has taken the lead in openness and transparency of party funding, which is why we have voluntarily declared such matters since 1994, when other political parties were not."

Prime Minister Tony Blair's official spokesman said: "We would refute absolutely that there has been any impropriety."

He said Enron had meetings at various times with Trade Secretaries Peter Mandelson and Stephen Byers, and industry ministers John Battle and Helen Liddell.

He said the Prime Minister had not had any official meetings with Enron representatives.