The New South Wales Electoral Commission has stood firm on its decision to withhold public campaign funding for the NSW branch of the Liberal party, despite the Coalition frontbencher Arthur Sinodinos threatening it with legal action.

Last week Sinodinos’s lawyers wrote to the commission expressing concern that documents it had published advising of its decision to withhold funds implied that Sinodinos had engaged in wrongdoing.

In 2011, just after the NSW state election, Sinodinos was the branch’s treasurer. He now holds the senior position of cabinet secretary in the federal government.

The commission alleged the party’s fundraising body, the Free Enterprise Foundation, was used to funnel $680,000 in prohibited donations. The branch had refused to disclose all political donations made to the foundation so the commission withheld $4.4m in public campaign funding.

On Thursday the commission responded to Sinodinos’s lawyers saying it would not reconsider the decision to withhold the money, and would not retract the statement in which the decision was published.

Sinodinos has steadfastly rejected any suggestion that he knew prohibited donors were putting money towards the NSW state election.

He acknowledged that the list of donors to the Free Enterprise Foundation included property developers – who have been banned from making donations in NSW since 2009 – but insisted he did not know they were putting money towards state elections.

“That was the universe of potential donors,” he told ABC Radio on Thursday.

“While it was illegal for prohibited donors like property developers and other donors under NSW legislation to make money available to state campaigns, they could still – if they were a property developer or whatever at that stage – provide money for federal campaigns, which some did in 2010, for example.”

He said he had been careful to follow the law on donations.

“No one would be approached where this would involve breaking the law, and that was the clear premise on which the whole of our activities were pursued,” Sinodinos said.

“I wasn’t asked to solicit donors from prohibited donors. None of our people who were on the committee were asked to do that. I was not aware of any scheme whereby we went to prohibited donors to ask them for money via the Free Enterprise Foundation.”

The prime minister, Malcolm Turnbull, urged the NSW branch to release the list of donors to the commission.

On Thursday the Australian newspaper released a list of the 73 individuals and companies that had donated through the Free Enterprise Foundation. The list includes a number of property developers, many of whom denied they provided money for the NSW state election in 2011, saying it was intended for the federal party.

