A close ally of Prime Minister Gordon Brown and Labour's leader in the Scottish parliament quit on Saturday over a funding scandal.
Brown has stumbled from one crisis to another in the 12 months since succeeding Tony Blair, squandering a big lead in opinion polls over the opposition Conservatives.
His Labour party now faces a serious risk of defeat to the Conservatives in the next election due by May 2010. Brown's problems have included the collapse of mortgage lender Northern Rock, unpopular tax changes and an economic downturn.
Wendy Alexander, sister of International Development Secretary Douglas Alexander, said she would resign after a group of Scottish lawmakers recommended she should be banned from Scotland's parliament for one day.
Alexander, who has only been leader of the Labour party in the Scottish parliament since September, had failed to declare donations to her leadership campaign.
"I acted in good faith and on the written advice of parliamentary authorities. I believe there has been a breach of natural justice and a partisan decision," Alexander told reporters in Glasgow.
"(But) I judge that this issue has become too much of a distraction on the real issues that should dominate our public life. I cannot ask Labour supporters in Scotland further forbearance."
NIGHTMARE YEAR
In a further blow for Brown, one of his own members of parliament - East Glasgow MP David Marshall - told party activists he was stepping down for health reasons. His decision will trigger a mid-term election for the seat.
Labour has already suffered two big defeats in similar votes this year, including its first mid-term loss to the Conservatives in 30 years last month.
And this week, the Conservatives retained the parliamentary seat of outgoing Conservative MP Boris Johnson - the new London Mayor. Labour won just 3.1 percent of the vote, faring worse than the marginal far-right British National Party.
Opinion polls this weekend showed Brown has suffered the fastest fall in popularity for a prime minister in at least 30 years, with David Cameron's Conservatives poised for a landslide triumph in the next full parliamentary elections.
Labour's former chief fundraiser Lord Levy told the BBC on Friday the party should consider replacing Brown, but analysts say a leadership challenge was unlikely given the impact such a battle could have on the party's already tarnished image.
