Birmingham City Council leader Mike Whitby faces an investigation by a local government watchdog after he was handed free of charge a luxury MG sports car worth at least £65,000.
He still has the black MG SV which he was loaned, shortly before MG Rover went under, from the Longbridge company after expressing an interest in buying the model.
PricewaterhouseCoopers, the MG Rover administrators, confirmed last night they were aware of the arrangement and were happy for Coun Whitby to retain the car until the future of the company could be resolved.
But his Labour opponents on the city council threatened to report him to the Standards Board for England for not declaring the loan of the car.
The Labour group deputy leader Ian Ward described the failure to declare the car as a "very serious matter".
Coun Ward (Shard End) added: "Even if it is only a loan and not a gift it still has a value and should have been declared."
Hitting out at "malicious gossip", Coun Whitby (Con Harborne) said he had made no secret of the matter and even had the car delivered personally to him at the Council House. He had not used the car since MG Rover went into administration and had only driven it twice.
The model, with a V8 engine and capable of 150mph, is one of the fastest road models in the country. Coun Whitby claimed: "I work a 98-hour week. I don't get time to drive around gallivanting."
He said the car was kept on his neighbour's drive in Warley Woods because his own drive is occupied by a large skip while a conservatory is being built.
Coun Whitby said he accepted the car partly as an individual customer and partly as the leader of the council in order to act as an "ambassador" for MG, promoting one of the company's finest cars.
"The market perception is important," Coun Whitby added.
"It is not my car. It is retrievable at one day's notice by whoever takes over the company."
He explained that shortly before MG Rover collapsed, he visited Longbridge to see whether the council could do anything to help the company stay afloat.
He expressed an interest in buying an MG SV, which was launched to acclaim at the Motor Show.
Coun Whitby said: "I was negotiating a heavy discount for employees of the city of Birmingham so they could buy cars from MG Rover to stave off receivership. I asked what I personally could do to lift the status of the company. I said I would show it around and market the marque. It is because of the status I have. I was an ambassador for the marque."
Coun Whitby, who owns the Black Country engineering firm Skeldings, added: "My gesture was driven by trying to save the company. I haven't hidden it at all. I have shown it to people. I have done nothing underhand."
Coun Whitby admitted he had not recorded the car in the council register of gifts and hospitality, but he intended to do so.
Councillors are obliged to declare gifts worth more than £25 handed to them in the course of their council duties.
A spokeswoman for PWC said: "As far as Mike Whitby is concerned, the intention was to promote MG Rover and we have decided to continue the arrangement because it is promoting the profile of the company."
Designed as a possible saviour of the company, MG SV sports cars turned into a huge financial flop. An MG Rover creditors' meeting last month heard that fewer than ten of the luxury models, which were on the market for between £65,000 and £80,000 each, were sold and clocked up £48 million debts.