Fresh blow for US Republican presidential candidate as attorney general says his charity engaged in illegal fundraising.

US Republican presidential candidate Donald Trump suffered a punishing new setback on Monday as authorities clamped down on his charitable foundation, while his opponent Hillary Clinton seized the opportunity to brand the property tycoon an unscrupulous businessman.

With just five weeks to go before the November 8 election, the billionaire Trump is struggling to regain his footing against a surging Clinton and climb out of one of the darkest periods of his campaign.

Already weakened by damaging revelations about his taxes, Trump was hit with an order by New York Attorney General Eric Schneiderman that the Donald J Trump foundation must “cease and desist from soliciting contributions” in New York.

The notice informed the charity that it had engaged in fundraising activities that were not legal because it had not been registered with state authorities.

With Team Trump on the defensive after leaked documents suggested that he may have paid no income tax for two decades, Democratic party candidate Clinton rounded on him as a bully who cares little for his fellow countrymen.

“While millions of American families, including mine and yours, were working hard paying our fair share, it seems he was contributing nothing to our nation. Imagine that,” a fired up Clinton said in Toledo, Ohio.

“He has been ‘dissing’ America in this whole campaign,” she charged, riding high on a surge in polling after a bruising first presidential debate.

The pair face off in their second showdown on Sunday.

Vice presidential nominees Mike Pence, the Republican governor of Indiana, and Democratic Senator Tim Kaine of Virginia take the stage on Tuesday for their only debate of the campaign cycle.

Personal attacks

Trump used an appearance before military veterans in Virginia to pound former Secretary of State Clinton again for handling classified information via a “basement” private email server.

READ MORE: Donald Trump ‘may have avoided paying taxes for years’

But he appeared to stumble when he addressed mental health issues facing army personnel and suggested some were returning from battle ill-equipped to cope with debilitating conditions.

“When you talk about the mental health problems, when people come back from war and combat and they see things that maybe a lot of the folks in this room have seen many times over, and you’re strong and you can handle it, but a lot of people can’t handle it,” Trump said.

“Donald Trump is a hawk, not a dove”

Retired Lieutenant-General Michael Flynn, a Trump adviser, said the candidate was merely “highlighting the challenges veterans face when returning home after serving their country.”

In recent days, Trump’s strongest line of attack has been seen as personal, and of a rare brutality even for this bare-knuckles campaign: he mocked Clinton over the weekend for coming down with pneumonia and even questioned her fidelity to her husband.

“Hillary Clinton’s only loyalty is to her financial contributors and to herself,” he said.

“I don’t even think she’s loyal to Bill, if you want to know the truth. And really, folks, really, why should she be, right?” he said, having already revived talk of former President Bill Clinton’s past infidelities after a lacklustre debate performance.

A defiant Trump meanwhile dodged the swirling questions about his tax record.

Trump’s top allies praised their candidate’s business acumen following the bombshell revelation by The New York Times that he declared a loss of $916m on his 1995 tax return, enabling him to legally avoid paying taxes for up to 18 years.

If true, the report based on documents leaked to the Times is proof of the tycoon’s “absolute genius,” said former New York mayor Rudy Giuliani, a Trump adviser.