Questions raised over appropriateness of such a divisive figure being escorted on her final journey by military honours

Buckingham Palace raised concerns about the ceremonial funeral with military honours for Lady Thatcher that is to be attended on Wednesday by the Queen and more than 2,000 guests including every surviving British prime minister, the Guardian understands.

As invitations were sent out to world leaders, including all surviving US presidents and Hillary Clinton, it emerged that concerns were expressed at the highest levels about whether it is appropriate for such a controversial figure to be escorted on her final journey by more than 700 military personnel.

In discussions about the funeral held over recent years, it is understood that questions were raised by senior figures about whether it would be right to associate the military with such a divisive figure, according to a well-placed Whitehall source.

It is understood that there were fears that the British tradition, in which the monarchy rather than politicians are associated with ceremonial aspects of the military, could be called into question. Thatcher's coffin will be drawn on a gun carriage of the King's Troop Royal Horse Artillery from St Clement Danes church – the church of the Royal Air Force in the Strand – to St Paul's cathedral.

David Cameron embarked on a late review of the funeral arrangements, which have been in preparation since Tony Blair's premiership, after the death of Thatcher from a stroke at the age of 87 on Monday. The meeting heard that a state funeral – last held in 1965 for Winston Churchill – had been ruled out under the last government at the express wishes of Thatcher. It is understood she felt uncomfortable about the prospect of lying in state. "I am not Winston," Thatcher is said to have told friends.

Thatcher's funeral is causing some political controversy. One senior Labour figure dubbed it the "Tory state funeral".

Cameron, who has been periodically briefed on the arrangements since entering Downing Street, did make one change to the plans. He insisted that parliament should be recalled – a break with plans that said MPs and peers would pay tribute to the late prime minister at the earliest opportunity if the Commons and Lords were in recess.

The change of plan caused some irritation among Labour MPs, though Ed Miliband raised no objections in line with his decision to respond to Thatcher's death in a dignified manner.

The PM accepted that a full ceremonial funeral would be held instead of a state funeral. Officials told him there was little practical difference between the two and the arrangements for Thatcher would be similar to the funerals granted to the Queen Mother and Diana, Princess of Wales. This allowed the government to say during the week that the funeral would "look and feel like a state funeral to all intents and purposes".

Buckingham Palace is understood to have noticed the similarity between a state and a ceremonial event during the lengthy preparations for the funeral.

Thatcher's funeral will look almost identical to the state funeral for Churchill, which caused no controversy because he was seen as a unifying figure during one of the gravest moments in British history. The unease explains why such emphasis has been placed on explaining that a ceremonial funeral will be held in the hope that people will understand that Thatcher is being treated differently to Churchill.

The sheer scale of the funeral was made clear on Thursday when No 10 announced that world leaders, including all surviving US presidents, would be invited. A dress code, including "Full Day Ceremonial without swords" and "Morning Dress (Black Waistcoat and Black Tie) / dark suit", will be included in the invitations.

The guest list has been drawn up by Thatcher's friends and representatives in conjunction with the government. All former members of her cabinets will be invited. This means that Lord Heseltine, whose challenge to Thatcher ended her premiership, will have to decide whether to go. He missed the Lords debate on Wednesday in which tributes were paid.

Lord Kinnock, the former Labour leader defeated by Thatcher in 1987, is not attending. He has not been invited because he will be attending a funeral in Wales. But the Top Gear presenter Jeremy Clarkson will attend.

Thatcher's coffin will be carried into the cathedral by a bearer party consisting of military personnel made up of all the three armed services including units involved in the 1982 Falklands war, which played an important part in strengthening Thatcher's premiership.

This is a short distance from the Mansion House where Thatcher caused controversy by straying into territory normally occupied by royalty when she took the salute at a military parade in October 1982 after victory in the Falklands.

It is understood that the Queen has decided to break with recent precedent and attend the funeral with the Duke of Edinburgh because of Thatcher's achievement in becoming Britain's first woman prime minister. The Queen has not attended the funeral of any former prime minister since Churchill's.

Thatcher's status as the first woman prime minister was one of the key reasons to justify a state funeral if one had been held under plans drawn up under the last government.

The guidance also stated that Thatcher was a figure of great historical importance because of her role in bringing an end to the cold war which posed such a great threat to Britain and the world.