The peer and Labour fundraiser - who has been caught up in the cash-for-honours controversy - will leave his job at the end of next month, Downing Street said.

A spokesman said Mr Blair thanked Lord Levy for his contribution as personal envoy in the troubled region since 2002.

He had been widely expected to depart when Chancellor Gordon Brown takes over at Number 10.

Liberal Democrat frontbencher Edward Davey said: "With Lord Levy gone, the challenge will be for Gordon Brown to clean up the mess left by the cash for peerages scandal and restore the public's faith in the political process.

"There was never any question that Lord Levy would go with his master. They worked so closely together and so many things were inseparable."

A spokesman for Lord Levy said: "Lord Levy has been Tony Blair's personal envoy in the Middle East and in a number of other countries since 1998. He has always said that this role will end when Tony Blair leaves office. This has always been anticipated, and is no different to many other similar positions.

"He is deeply honoured and privileged to have served his country in the international arena for the past nine years and is grateful to the Prime Minister for this opportunity.

"He also pays tribute to the three Foreign Secretaries he has worked with - the late Robin Cook, Jack Straw and Margaret Beckett, and all the ambassadors and staff at the Foreign Office, past and present, for their tireless energy, hard work and support.

"Lord Levy thanks Chancellor Gordon Brown for his recent kind remarks, and congratulates him on his appointment as Labour Party leader and wishes him well in all his future endeavours as Prime Minister."