The former Prime Minister and his successor as Labour leader could be asked to testify under oath within weeks after David Cameron ordered a parliamentary inquiry.
The investigation will consider the role of politicians in charge of regulating the industry, as well as the wider culture of the banking industry. But the exercise threatened to descend into acrimony last night as Labour MPs accused the Conservatives of playing politics and threatened a boycott. Labour also reiterated its call for an independent inquiry into the abuses, warning that the public will not trust politicians to investigate bankers.
The row came as Coalition ministers faced increasing pressure to act over the abuses and on the day the scandal claimed its most high-profile casualty, Barclays chairman Marcus Agius.
Pressure also mounted on the bank's chief executive, Bob Diamond, to resign.
It has emerged that the Serious Fraud Office will decide within weeks whether to pursue criminal charges over the interest rate manipulation.
Barclays was fined a record £290 million last week over the rigging of a key interbank lending rate, Libor, and a number of other banks, including RBS, are still under investigation.
The rate is crucial because it has a knock-on effect on how much banks charge customers to borrow money for mortgages and other loans.
Asked if Labour could refuse to co-operate with the parliamentary inquiry, Ed Balls, the Shadow Chancellor, warned: "We will not co-operate with something unless we are sure it is not going to be partisan".
Earlier Chancellor George Osborne had rounded on Mr Balls, telling MPs that as City minister at the time of the rate rigging he had questions to answer.
In the House of Commons, Mr Osborne said: "We need to know whether he knew anything of what was going on. Did he express any concern about the Libor rate?
"When he was in the cabinet and Gordon Brown was Prime Minister, was he concerned about the Libor rate and Barclays? We shall find out in due course."
The Chancellor said Labour had "allowed these abuses to happen", and the Prime Minister also squarely blamed the party for the scandal.
He told MPs that the party's whip in the House of Lords had "stood up and said this was absolutely Labour's fault". He added: "It is a pity we don't hear more of that from the party opposite."
But Labour hit back, calling the Coalition's plan "weak and inadequate".
Mr Balls said: "Only with an independent, forensic and open public inquiry – not politicians investigating bankers – can we rebuild trust for the future."
Sources close to the Chancellor said they expected the inquiry to call the former Labour Prime Minister.
"There is a hope that Gordon Brown will be an early witness," one said.
Politicians are expected to be asked what they knew about allegations of rate fixing at a number of UK banks and about decisions on bank regulation.
Among those who worked at the Treasury between 2005 and 2009, when rate fixing is alleged to have taken place, was Mr Miliband.
The joint committee of MPs and peers who will lead the inquiry is expected to be dominated by Coalition MPs.
Headed by the respected Tory MP Andrew Tyrie, the chairman of the Treasury Select Committee, it will have the power to call witnesses under oath and is expected to be set up within weeks.
Treasury sources said the inquiry should get "cracking as soon as possible".
Ministers want it to report by the end of the year so they can make amendments to the Financial Services Bill currently going through Westminster.
The Prime Minister also announced yesterday a more narrow and speedy inquiry into interest rate fixing.
Alistair Darling, the former Labour Chancellor who is expected to be called to give evidence, warned that the wider inquiry would fail if it was perceived as political "score settling".
Labour also said the public would not trust politicians to investigate bankers and would "fear a stitch-up between the great and the good".
But ministers insist an independent public inquiry would be too costly and time-consuming and they would lose the chance to make major changes to the current Bill.
The SNP cautiously welcomed the inquiry last night but added that a full public inquiry would hold Labour ministers to account for their role in the scandal.
The party has called for an immediate
parliamentary investigation, which it says would not rule out a possible broader independent inquiry.
SNP Treasury spokesman Stewart Hosie said: "A parliamentary inquiry is a welcome step, but a full, open independent inquiry will help all of us understand how banks, regulators and politicians failed to notice and act at the time this was going on."
He added: "Alistair Darling was Chancellor, Gordon Brown was Chancellor and Prime Minister and Ed Balls was Economic Secretary to the Treasury when Libor fixing was going on."
The Bank of England has also been drawn into the affair after it emerged that Barclays staff mistakenly thought they were instructed by the central bank to lie in their rate submissions.
The Financial Services Authority's report said there had been a misunderstanding arising from a conversation between Bank Deputy Governor Paul Tucker, a favourite for the Governor role, and an unidentified senior Barclays manager in 2008.
l The Chancellor will today outline plans for tougher sanctions on bankers.
These are expected to include barring the bosses of banks that fail from ever holding positions of responsibility in the City again.