Lynton Crosby must go, urges former Lib Dem health minister, as cross-party anger grows over U-turn on cigarettes

David Cameron faces calls from senior Liberal Democrats to sack his controversial election strategist Lynton Crosby over his links with the tobacco industry, as the coalition descended into open warfare over public health policy.

As the latest row over the role of big money in politics hit Downing Street, Paul Burstow, who was a health minister until September last year, said Crosby should either quit or be sacked by Cameron after it emerged that his lobbying firm works for global tobacco giant Philip Morris.

Other Liberal Democrats also made clear they were furious and would fight to ensure Crosby was removed from any role in which he could influence health or any other coalition policy.

Amid the growing furore, the Tory chairman of the all-party select committee on health, former health secretary Stephen Dorrell, announced that his committee would look into why the government had changed its mind on the question of cigarette packaging.

Last Friday, the government revealed that it was shelving plans to introduce plain packaging on cigarettes, prompting a furious reaction from the health lobby and MPs from across the political spectrum. The Observer understands that health ministers were almost uniformly in favour of plain packaging but were overruled by Downing Street.

Dismay at the sudden about-turn deepened yesterday when Philip Morris, one of the Big Four tobacco companies, said it had employed Crosby's lobbying and communications firm CTF to give it advice "on a range of matters" since November. Crosby has been employed by the Tory party as chief strategist since last autumn. CTF has consistently refused to say who its clients are, despite long-standing suspicions that it works for big names in the tobacco and drinks industries.

This week the government is also expected to announce that it is shelving its plans to introduce minimum pricing on alcohol.

Amid increasing Liberal Democrat anger, Burstow said it was time for Crosby to go. "Lynton Crosby cannot remain at the heart of government while he is also serving the interests of the tobacco industry. If he does not go the prime minister should sack him."

Steven Williams, Liberal Democrat MP and chairman of the all-party group on smoking and health, also said Crosby's position was untenable. "It is a massive conflict of interest to have someone who works for the tobacco industry at the heart of government," Williams said. "The prime minister should be considering whether he believes Crosby's position is tenable."

Moves are now under way from MPs and peers of all parties to try to amend the children and families bill as it passes through the Lords in order to reinstate the policy.

Cameron has insisted that Crosby is only employed by the Conservative party and not by the government and does not lobby him on policy. But Labour wrote to Cameron asking about any meetings with him, his officials or ministers on tobacco policy.

Shadow cabinet office minister John Trickett asked: "Will you now be asking Lynton Crosby to give up Philip Morris and any other clients who could potentially benefit from government decisions on which he advises?

"If Lynton Crosby refuses to give up his conflicting interests, will you undertake to cease to employ him as a Conservative party adviser?"

The row is a huge embarrassment to Cameron, coming just a week after he appeared to have turned the political heat on Labour over its financial links to the trade unions.

An Opinium/Observer poll shows that despite the row over union influence, Labour has stretched its lead to 11%, with more voters concerned about the influence that big-money donors have on the Conservative party than about the unions' sway over Labour.

Attention will now be turned to government plans, set to be announced on Tuesday, to introduce a compulsory register of lobbyists.

The Observer can also reveal that Cameron is in a potential fix over World Health Organisation rules aimed at preventing conflicts of interests in government with the tobacco lobby.

The UK is a signatory to the World Health Organisation Framework Convention on Tobacco Control, which states that governments and other parties "need to be alert to any efforts by the tobacco industry to undermine or subvert tobacco control efforts and the need to be informed of activities of the tobacco industry that have a negative impact on tobacco control efforts".

The government says it will wait to see the results of the switch to plain packaging in Australia before it decides whether to follow suit. But the Department of Health's own studies have found a strong case for the move.

The extent of CTF's links to government are also highlighted in claims made by the company's senior director, Sam Lyon, who says on the CTF website that he "provides senior counsel, strategic communications advice, media training and writes opinion pieces and speeches for cabinet-level politicians and business leaders, both in the UK and internationally". Lyon refused to comment.

Dorrell, chairman of the Commons select committee, said of the decision to drop plain packaging: "I think it is a disappointing development. It is certainly something that the select committee will wish to review with Public Health England."

A Labour source said: "It appears David Cameron never asked Lynton Crosby about his links to the tobacco industry. This is negligent to the point of recklessness."