The Electoral Commission will not open an investigation into payments made to David Cameron's former spin doctor Andy Coulson by his former employer News International.
Mr Coulson received the payments after quitting as News of the World editor as the phone hacking scandal engulfed the now-defunct tabloid.
The watchdog has said there was "no evidence" to suggest that strict rules relating to political party finances had been breached.
Mr Coulson was hired by the Tories in July 2007 on a reported salary of £275,000, six months after he quit as editor of the Sunday newspaper when its royal editor Clive Goodman and private investigator Glenn Mulcaire were jailed for phone hacking.
It was reported last week that for several months after he started his new role, the spin chief was still receiving instalments of money as full settlement of his two-year contract.
Mr Coulson continued to work for Mr Cameron in Downing Street as No 10's communications chief until he quit in January this year as the phone hacking scandal refused to die down.
Labour MP Tom Watson wrote to the Commission questioning whether the severance pay effectively part-funded Mr Coulson's salary.
But a spokeswoman for the watchdog said: "There is no evidence to suggest that there has been a breach of the Political Parties Elections and Referendums Act. We won't be opening a case review in to the allegation."
Tory sources said Mr Coulson was not asked about his severance package when he was taken on as Mr Cameron's communications chief.
A party spokesman added that the payments were a "private matter" and it was not part of the recruitment process to discuss severance deals from previous jobs with potential employees.