ED Miliband has accused David Cameron of unjustified smears over claims about Labour's links to the disgraced former Co-operative Bank chairman Paul Flowers.

The Labour leader's retaliation came as it emerged the Methodist minister left a charity helping people with drugs and alcohol addictions after an investigation over claims for about £70,000 in expenses.

Mr Flowers, 63, resigned from the Lifeline Project, where he was a trustee on the board of the organisation, in 2004, long before he was engulfed in allegations of illegal drug use and gay sex.

The claims led to his suspension from the Methodist Church and a growing political row over his appointment to the Co-op Bank and its close ties with the Labour Party.

On Wednesday, the Prime Minister accused the Opposition of being "mired in a banking scandal", claiming the Labour leadership must have known about Mr Flowers' past. Mr Cameron signalled that the UK Government was about to announce a new inquiry into the bank's ailing finances and its decision to appoint Mr Flowers.

But yesterday Mr Miliband hit back, insisting his party had acted with the "utmost integrity" while Shadow Chancellor Ed Balls, who received a £50,000 donation to his office from the Co-operative Group, said he had "nothing to hide" and that Mr Flowers was not involved.

The Labour leader said: "What this episode shows is more about the character of the Prime Minister than about the character of Labour's relationship with the Co-op. We have a Prime Minister who, when he sees a serious situation at the bank, tries to make cheap political points rather than sorting it out."

He added: "David Cameron is determined to smear his way through the next 18 months. That is not what the British people expect from their Prime Minister."

Yet on his weekly London phone-in radio show, Deputy Prime Minister Nick Clegg sought to maintain the focus on Labour, saying its relationship with Mr Flowers sounded "extremely murky" .

Elsewhere, Grant Shapps, the Conservative chairman, did likewise, saying: "What is undeniable and we know for a fact is that, just three weeks after Ed Miliband met Paul Flowers, there was a loan made to the Labour Party on what looks like 'mates' rates', in terms of the interest rates, of millions of pounds. We also know that £50,000 was indeed given to the Shadow Chancellor Ed Balls as a gift to his office."

But Mr Balls hit back, saying: "I have never had a meeting with Paul Flowers, a telephone conversation exchanged, an email; never. Nor have I ever received any donation from him or the Co-op Bank."

He sought to turn the focus on to the Government, claiming ministers had questions to answer about contacts with Mr Flowers and the Co-op Bank over its plan to take over branches of Lloyds.

"What on earth were George Osborne, Nick Clegg, the Treasury and the Bank Of England, the regulator, doing? Didn't they do due diligence?" he asked.

Meantime, Ian Wardle, Lifeline's chief executive, revealed how there was concern at the nature of some of Mr Flowers's expenses claims during his time with the charity.

"The sum in question initially was between £60,000 and £70,000 spread over a five-year period. There was a concern about that sum of money... There was greater concern, it's fair to say, about the nature of some of the claims... Some of them were clearly legitimate but there was quite a lot of travel, quite a lot of dining, quite a lot of hotels."

He added that a subsequent investigation failed to get "satisfactory answers" to some of the claims because Mr Flowers resigned.