The Electoral Commission has launched an inquiry that has the potential to imperil Boris Johnson’s premiership as the “cash for curtains” row increasingly engulfed the prime minister.

With sweeping powers to call witnesses and refer matters to the police, the watchdog said its probe was necessary because it already believed there were “reasonable grounds” to suspect that payments for expensive renovations to Johnson’s Downing Street flat could constitute several offences.

Though Johnson has insisted he has done nothing wrong, he was goaded into a fury at prime minister’s questions as Keir Starmer, the Labour leader, interrogated him by asking pointed questions that Johnson mostly sidestepped or ignored.

He stuck to claiming that he had paid the costs “personally” – but did not deny receiving a donation or loan of £58,000 from a Conservative peer and party donor, David Brownlow, to foot the bills, despite no record of such a transaction being published.

Starmer labelled Johnson “Major Sleaze” and accused the government of being “mired in sleaze, cronyism and scandal”. He also criticised the prime minister for taking time out from dealing with the coronavirus pandemic to reportedly “moan” about his former adviser, Dominic Cummings, to newspaper editors and spend time choosing wallpaper that costs more than £800 a roll.

Johnson branded the inquiries “absolutely bizarre”, and Matt Hancock, the health secretary, later dismissed a trio of questions at the Downing Street coronavirus briefing, refusing to be drawn on whether a minister who is found to have broken electoral law should resign.

Asked whyhe was declining to answerHancock said: “It is important that there are questions, and there were endless questions in the House of Commons earlier on some of the issues that you raised … but you’ve also got to concentrate on the big things that really matter.”

The commission’s announcement came after five days of relentless scrutiny of Johnson and his behaviour in office, provoked by the claims of his former chief adviser, Dominic Cummings in a devastating blog post last Friday.

Cummings said Johnson told him last year of a plan to “have donors secretly pay for the renovation” to his No 11 residence, which he shares with his fiancee, Carrie Symonds, and their son, Wilfred.

He claimed that the plan as described to him was “unethical, foolish, possibly illegal, and almost certainly broke the rules on proper disclosure of political donations” – all warnings he said he had made directly to the prime minister.

Cummings is likely to be among the figures the commission will want to interview; Johnson could also be called, and officials could be ordered to hand over emails and messages. The commission can also issue fines of up to £20,000, with most offences under the Political Parties, Elections and Referendums Act 2000 resulting in a civil sanction.

Senior Labour figures are understood to be frustrated that the Electoral Commission inquiry seems to be into the Conservative party and not Johnson.

One told the Guardian: “Money being funnelled into the prime minister’s private life with no paper trail or declaration isn’t just a matter for CCHQ [Conservative Campaign Headquarters] – that should be a matter for its leader, Boris Johnson, too.”

If any rules are found to have been broken, the focus will inevitably fall on Johnson, as the renovations in Downing Street were undertaken at his behest.

Two other Whitehall inquiries have been launched to look at the scandal, adding to the pressure on the prime minister. On Wednesday, Christopher Geidt, the new adviser on ministerial standards, said he would begin his own investigation into the flat payments, alongside one already under way by the cabinet secretary, Simon Case.

But Downing Street admitted that Johnson will retain the power to quash both probes and exonerate himself and ministers.

The admission prompted grave concern from former top civil servants. The former head of the government legal service, Jonathan Jones, who quit over Johnson’s threat to break international law last year, said the public needed to have confidence the ministerial code was being respected, even if it has no legal status.

“The problem is, we can have no confidence that these standards are being enforced or that any action will be taken when they are breached,” he said. “Its enforcement depends purely on prime ministerial whim.”

The furore over the flat resurfaced following a recent blog by Dominic Cummings.

Bob Kerslake, a former head of the civil service, also said Johnson’s decision not to accept a suggestion from Jonathan Evans, chair of the committee on standards in public life, for Lord Geidt to let him launch his own investigation “will raise concerns”.

Johnsonwas caused further embarrassment at the revelation that chancellor, Rishi Sunak, also redecorated his Downing Street flat last year. A minister from his department said: “It was paid for upfront and entirely at his own expense. No request was made to HM Treasury.”

Tory MPs have repeatedly urged Johnson to come clean over the flat payments, fearing his obfuscation was only driving interest in them and increasingly making it look as if he had something to hide.

While they are publicly bullish about whether the issue will put any meaningful dent in the Conservatives’ performance at next week’s local elections, they accept that repeated hammering from usually friendly newspapers is unlikely to help.

One insider admitted it was a “shit” situation, and another said they were waiting nervously for Cummings to “pull the trigger” on more revelations that could damage the prime minister’s credibility.

Johnson was also forced to deny in the Commons that he was a “liar”, and insisted that he did not voice his opposition to a second lockdown across England last winter by declaring: “Let the bodies pile high in their thousands.”

Despite multiple witnesses telling the Guardian and other media outlets that they heard the prime minister make the comment, he said people should identify their sources to substantiate the account.

Amid claims from opposition parties that Johnson frequently gives “colourful mischaracterisation of the truth” and is a “serial liar”, a panel of MPs will consider how misleading comments made in parliament should be corrected. A spokesperson for Sir Lindsay Hoyle, the Commons speaker, said he welcomed their suggestion to ask the procedure committee to come up with a better system for setting the record straight when MPs make “perceived inaccuracies”.