The political row over the Co-op Bank's near collapse and the revelations about Paul Flowers has intensified, with Ed Miliband accusing David Cameron of "desperate" smears over Labour's links to the lender's scandal-hit former chairman.
The Labour leader claimed Mr Cameron reached a "new low" at Prime Minister's Questions by using Mr Flowers' troubles to "impugn" Labour's integrity.
But Tory chairman Grant Shapps insisted Mr Miliband's response was "ludicrous" and stepped up pressure on Labour over the damaging deal which saw the Co-op merge with Britannia.
Mr Shapps said there were "conflicting reports" about how much the Labour leadership knew about Mr Flowers' past, which included him standing down as a Labour councillor after pornography was found on his computer.
Labour has said Mr Miliband and shadow chancellor Ed Balls did not know about the reason why Mr Flowers quit in 2011.
But Mr Shapps told BBC1's Sunday Politics: " You are telling me that they didn't know. I'm not sure that's clear at all, I have heard conflicting reports on that.
"Arguing about what they knew and when, I think there's a much bigger issue here. This morning you have got Ed Miliband saying 'we don't have to answer any of these questions', they are somehow all smears. This is ludicrous."
He continued: "Labour, the party, certainly knew about these very difficult circumstances in which he resigned as a councillor. That's a thing that the Labour Party knew about."
Mr Shapps asked: "If Ed Miliband didn't know about that, then why didn't he know about that?"
The Tory chairman accused the former Labour government of putting "excess political pressure" on the ill-fated Britannia deal in 2009.
Although he accepted the Tories had supported the deal, he suggested that the "proper process" had not been followed.
Comparing it to the aborted deal to take over 632 Lloyds branches, he said: " A proper process was followed which did not result in the purchase of the Lloyds branches.
"Had that proper process been followed with the purchase of the Britannia under the previous government perhaps then we wouldn't end up in this position.
"It may well be that under that previous deal there was excess political pressure put on in order to create that merger which has proved so disastrous for the Co-op Bank."
The Tories have sought to highlight the close links between Labour and the Co-op, including "soft loans" at preferential rates and a £50,000 donation to Ed Balls' office from the Co-operative Group.
But Labour have used the row over the near collapse of the lender to put pressure on George Osborne over his support for the Co-op's bid for the Lloyds branches.
Mr Shapps said an independent review announced by the Chancellor would examine all the issues.
"That is why it is so important to have a proper independent review," he said. "What I can't understand is when you announce a proper independently-run review the response you get to these serious questions ... the response you get is 'oh, this is a smear'."
The 63-year-old Methodist minister Mr Flowers, who has been bailed after being questioned by police officers "investigating allegations of drug supply offences", stepped down as Co-op Bank chairman in June and questions have since been asked about his competence in the role.
He was suspended by both the Methodist church and the Labour Party following the allegations that he bought and used illegal drugs.
Mr Miliband has accused the Tories of resorting to a strategy of mud-slinging in an effort to win the 2015 election, highlighting Mr Cameron's decision to attack Labour's Co-op links at Prime Minister's Questions.
In a strongly-worded piece in the Independent on Sunday, Mr Miliband said Mr Cameron "hit a new low by trying to use the gross errors and misconduct of one man, Paul Flowers, to impugn the integrity of the entire Labour movement".
He said: "We all want proper answers as to what went on at the Co-operative Bank, and the public deserves better than the desperate attempts by the Tory party to score the cheapest political points, including ludicrous claims that Labour's historic links with the Co-op movement were the invention of Rev Flowers.
"Of course, the credibility of their smears was undermined when it emerged that the Chancellor himself was promoting the Co-op's bid to take over Lloyds Bank branches."
The Labour leader added: " David Cameron cannot resist a low blow when the British public craves a politics on the high ground.
"His main political strategy is now to sling as much mud as possible in the hope that some of it sticks. When he does so, he demeans his office."
Labour has insi sted that its finances were on a "secure footing" despite reports that it may have to pay off £2 million in loans from the Co-op and a sister bank before the 2015 general election as a result of the lender's difficulties.
But a Labour spokesman said: "Our loans with the Co-operative Bank and Unity Trust Bank are secured and are being repaid in accordance with formal long-term commercial agreements and the Labour Party is on a secure footing for the future."
Former City minister Lord Myners said that the big political question that needed answering was the extent of pressure George Osborne and Mark Hoban put on the Lloyds deal to go through.
Speaking on Sky News' Murnaghan, the Labour peer said: "We have to ask here what George Osborne and Mark Hoban were doing?
"Did they go too far in trying to force through the project - a very big transaction - which would have seen four million customers of Lloyds Bank transferred to the Co-op Bank without a single right of comment, or vote on that decision.
"Mark Hoban, we are told, had over 30 meetings with the Co-op - that, from my experience as a minister, is an extraordinarily high number of meetings. That needs to be investigated."
Jesse Norman, a Tory member of the Commons Treasury Select Committee, said it was a "fascinating question" that the committee had tried to get to the bottom of.
He said: "We have asked all of the people who have come up in front of us from the Co-op so far, whether or not they had felt under any political pressure, either from present government or the previous government.
"The uniform testimony has been that there was no pressure."