Boris Johnson insisted he has not broken any laws over the refurbishment of his Downing Street flat after the Electoral Commission launched a formal investigation.

The watchdog said there are “reasonable grounds” to suspect an offence may have occurred, dramatically deepening the Prime Minister’s troubles over the renovations on Wednesday.

Questions have been mounting since former aide Dominic Cummings accused Mr Johnson of wanting donors to “secretly pay” for the renovations to his No 11 residence in a “possibly illegal” move.

Shortly after the commission’s announcement, Mr Johnson told Prime Minister’s Questions he “personally” paid for the renovations, but refused to answer whether he received an initial loan from the Tory party.

Challenged by Labour leader Sir Keir Starmer over the “incredibly serious” development, Mr Johnson told MPs that “any further declaration that I have to make, if any” will be advised by his newly appointed independent adviser on ministers’ interests, Lord Geidt.

Sir Keir pressed the Prime Minister on whether he believes any “rules or laws have been broken” over the refurbishment of the flat.

“No, I don’t,” Mr Johnson replied, adding that he has “met the requirements that I have been obliged to meet in full”.

During the angry exchange in the Commons, the Prime Minister was also forced to deny having said he would rather see “bodies pile high” than impose a third coronavirus lockdown.

The questioning came less than an hour after the Electoral Commission announced its investigation into whether any financial transaction related to the renovations was properly declared.

“We are now satisfied that there are reasonable grounds to suspect that an offence or offences may have occurred,” a statement from the watchdog said, after it conducted an assessment of information provided by the Tories late last month.

“We will therefore continue this work as a formal investigation to establish whether this is the case.”

Crucially, the watchdog said the investigation will “determine whether any transactions relating” to the renovations “fall within the regime regulated by the commission and whether such funding was reported as required”.

“We will provide an update once the investigation is complete. We will not be commenting further until that point,” a spokeswoman added.

The Conservative Party said it would “continue to work constructively” with the commission.

“We believe all reportable donations have been transparently and correctly declared and published by the Electoral Commission,” a spokesman said.

The commission can issue fines of up to £20,000, with most offences under the Political Parties, Elections and Referendums Act 2000 resulting in a civil sanction.

But it can also refer investigations to the police or prosecutors.

Investigators can demand documents, information and explanations, and could potentially seek a statutory interview with the Prime Minister as part of the process.

Asked if Mr Johnson is willing to be questioned in person, the Mr Johnson’s press secretary said: “The Prime Minister hasn’t been asked for any information but he and the Government will of course be happy to assist if asked.”

The announcement came as former private secretary to the Queen Lord Geidt was appointed as the new independent adviser on ministers’ interests.

The post has been vacant since Sir Alex Allan resigned in November in response to Mr Johnson standing by Home Secretary Priti Patel despite an investigation finding her conduct “amounted to behaviour that can be described as bullying”.

The appointment of the new adviser paves the way for the publication of the latest register of ministerial interests, which could contain details of any donations to fund the Downing Street flat.

However, the Prime Minister’s official spokesman said Mr Johnson will remain the “ultimate arbiter” of whether the ministerial code has been broken, even if the investigation centres on himself.

The crossbench peer agreed he will begin his new role “by ascertaining the facts surrounding the refurbishment of the Downing Street flat and advise the Prime Minister on any further registration of interests that may be needed”, a Government statement said.

Labour has accused Mr Johnson of having “lied” over the funding, and accused senior members of the Government of a possible “cover-up” as ministers battled a series of “sleaze” allegations.

Prime ministers get a budget of up to £30,000 per year to renovate their Downing Street residency, but newspaper reports have suggested Mr Johnson has spent up to £200,000.

Last week, the Daily Mail published details of an email from Tory peer Lord Brownlow in which he said he was making a £58,000 donation to the party “to cover the payments the party has already made on behalf of the soon-to-be-formed ‘Downing Street Trust’”.

Mr Johnson was also facing pressure over allegedly saying in October he would rather see “bodies pile high” than impose a third coronavirus lockdown.

Sir Keir challenged the Prime Minister on the remarks, asking for a categoric “yes or no” as to whether he made comments to that effect.

“No,” Mr Johnson responded, before again being challenged on the remarks by the SNP’s Westminster leader Ian Blackford.

He said: “If he is going to relay that kind of quotation, it is up to him in a place like Parliament to produce the author, the person who claims to have heard it, because I can’t find them, he says that they’re willing to go (on) oath. Perhaps they’re sitting somewhere in this building, I rather doubt it because I didn’t say those words.”

The bombardment of allegations around the Prime Minister come as he is embroiled in a public row with Mr Cummings, who until last year was his senior adviser in No 10.

Mr Cummings hit out at his former boss in a blog post, saying he had fallen “below the standards of competence and integrity the country deserves” after No 10 sources, reportedly the Prime Minister himself, accused him of being behind a series of leaks.