The honours system is at risk of being brought into "disrepute" by rewarding wealthy individuals who donate money to political parties, the standards watchdog has warned.
Sir Christopher Kelly, the chairman of the Committee on Standards in Public Life, called for reform of the rules on party funding to avoid damaging confidence in politics.
His comments, to The Daily Telegraph, came after four millionaire Tory donors received awards in the New Year honours list.
They included knighthoods for hedge fund tycoon Paul Ruddock and package holiday entrepreneur Doug Ellis, and CBEs for investment banker James Lupton and construction magnate James Wates.
Together they have given almost £1 million to the Conservative Party.
Two major Labour donors, Capita boss Rod Aldridge and the founder of online gambling firm bet365, Denise Coates, were also honoured at the weekend.
Sir Christopher said: "For as long as you can make political donations, when there is a coincidence between honours and donors you get this sort of story.
"It implies corruption even when there isn't any. It is unsatisfactory. It is bad all round. They risk bringing it (the honours system) into disrepute."
He added that the present arrangements were "very bad for confidence in the political system and unfair to donors who give for altruistic notions".
"This is why we need to reform the system because donating to political parties should neither bring an honour nor be a bar to receiving an honour," he said.
Labour MP Michael Dugher, a shadow Cabinet Office minister, said the honours list reflected the Tories' priorities in office.
"David Cameron promised to clean up politics, but in office he has shown he is utterly out of touch with decent British people," he said.
"He is giving a knighthood to Paul Ruddock, who made millions from the collapse of Northern Rock and has given over £500,000 to the Tories.
"This tells you everything you need to know about the Tories' priorities. When millions of families are struggling to get by, it's the Tories' friends in the City who get the rewards."