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Western diplomats say they are alarmed by reports that Mr Erdogan has negotiated a deal with Iranian President Mahmoud Ahmadinejad for Tehran to make a substantial contribution to the campaign funds of Turkey's leading Islamic party.

Under the terms of the deal Iran has agreed to transfer $12 million to the AKP, with further payments of up to $25 million to be made later in the year. The money is said to be meant to help support Mr Erdogan's campaign for re-election for a third term in next year's general election.

The Turkish government denied having received the money from Iran.

The Turkish prime minister announced he would stand for a historic third term following his success in last weekend's referendum on constitutional reform.

The government argued that the reforms were necessary to improve Turkey's chances of membership to the European Union. But secular critics of the reforms, which provide the government with powers to overrule Turkey's powerful judiciary, argue that they will pave the way for a key Western ally to become an Islamic state.

The judiciary is widely regarded as the guardian of Turkey's secular constitution. In 2008 it came close to banning the AKP after it campaigned for women attending university courses to wear Islamic headscarves.