Price, 70, is the most senior mason in Birmingham and the surrounding area, and is in charge of 200 lodges and about 6,500 masons. The donation will benefit the Tory party across the Midlands rather than the national party.

Donations to political parties by unincorporated associations have attracted scrutiny as critics claim they can be used to hide the identity of backers.

The associations are effectively voluntary organisations which do not have to file public records in the same way as charities and companies, and therefore remain anonymous.

Laws introduced by Labour in 2001 stipulate that unincorporated associations cannot be set up purely to act as conduits for donations to political parties. Those breaking the rules face up to a year in jail and an unlimited fine.

Since 2001, political parties have been forced to reveal donations of more than £5,000. However, unincorporated associations can make donations without revealing who is behind them.

Freemasons have long sought to shake off their caricature as a group of secretive and ageing businessmen in aprons and rolled-up trousers.

Members swear not to reveal secret rituals. In 1986, the rules changed so that they no longer had to agree to have their throats slit and tongues cut out if they broke their oaths.

The modern era of free-masonry began in 1717 with the foundation of the first grand lodge of England.

The judiciary and police service operate voluntary arrangements for masons in their ranks to reveal their membership, although implementation of the system is patchy.

George VI, Sir Winston Churchill, Sir Alexander Fleming, Sir Ernest Shackleton, Rudyard Kipling and Field Marshal Earl Kitchener of Khartoum are among former members. The current grandmaster is the Duke of Kent.

Discussion of politics is banned at masonic meetings. A spokesman for the Warwickshire masons said Price chaired the Leamington Fund, but it had no connections to the lodge.

Price said the Leamington Fund was set up to assist the Tory party about 80 years ago. He added that it was made up of local Conservative supporters who made donations. The fund has never previously appeared on the Electoral Commission’s register of donors.

Geoff Reynolds, the chairman of the Warwick and Leamington Conservative Association, said he had never heard of the organisation.

The Tory party has also received more than £700,000 from another unincorporated association, the Midlands Industrial Council. It has given a number of donations since April 2003, but has never filed any public records. It is administered from a modest family home in Lincolnshire.

The council is thought to be chaired by Robert Edmiston, an active Christian and head of the IM Group, which imports and distributes cars.

He has been put forward for a peerage by the Tories in the forthcoming list of new members for the House of Lords.

A senior Labour party source criticised the Conservatives for accepting money from the two associations. “We get criticised for some of our donations, but we are open about where the money comes from,” he said.

Yesterday a spokesman for the Conservative party said the correct procedures had been followed.

“The money from the Leamington Fund was given to a local association and all the right checks were made to make sure the money came from permissible donors.”

The Conservatives have received other intriguing donations in the past year. The Sunday Times disclosed that the party received £440,000 at a fundraising ball from the sale of a picture of Baroness Thatcher.

The painting, estimated to have a market value of about £30,000, was bought by Diana Van Nievelt Price, an accomplished horsewoman who lives in a bungalow near Loughborough in Leicestershire.

The Labour and Conservative parties have been criticised for handing out peerages to top donors. A leaked list of people proposed to be elevated to the House of Lords later this year revealed four of the names put forward by Labour and at least two by the Conservatives were donors.

The life peers created by Blair since 1997 have contributed almost £25m in donations.

The commission that oversees appointments to the upper house is considering its recommendations on the new peers. However, it is understood to have “reservations” about several of the names put forward. Peter Macdiarmid