Prime Minister Tony Blair held a secret meeting in the Kensington home of a City tycoon where he met a group of business people lobbying for unlimited immigration from Romania and Bulgaria.

The Observer has learnt that Blair attended a private dinner at the luxury Kensington townhouse of Roland Rudd, the high-flying financial public relations guru who is a close friend of European Trade Commissioner Peter Mandelson.

Earlier this year Blair's eldest son Euan spent a fortnight at Rudd's company Finsbury on a work experience placement. Although it is not unusual for the Prime Minister to meet senior figures in business, it is unusual for him to go to a private house where such discussions would not be minuted.

At the dinner, earlier this summer, several of Finsbury's corporate clients were present, including Roger Carr, chairman of gas giant Centrica, Philip Hampton, chairman of Sainsbury, and Sir Nigel Rudd, chairman of Boots. According to a source who was present the businessmen were there as representatives of a campaign group called Business for New Europe (BFNE) launched by Rudd last March 'to support the UK's active engagement in Europe, and a reformed, enlarged and free-market EU'.

Most recently the fiercely pro-Europe group has been involved in a campaign calling for East European workers to have open access to the UK's labour market. It was reacting against concerns that there will be a flood of Bulgarians and Romanians heading to the UK for work when the two countries join the EU next year. Critics have been calling for tight employment restrictions to be placed on migrants.

Yet in a recent statement signed by business leaders, released to the media, Rudd's group stated: 'If Bulgaria and Romania join the EU at the beginning of next year, the UK should continue with its open-door policy. A so-called pause in migration from these countries would be tantamount to a reversal of policy and could work against Britain's interest.'

As well as Carr and Hampton the letter was signed by David Levin, chief executive of United Business Media, who was also known to the be at the private dinner held at Rudd's home. Another guest at the dinner is believed to be Vijay Patel, chief executive of Waymade Healthcare.

During the summer, the Home Secretary John Reid suggested that the UK government was moving in favour of placing employment restrictions on Bulgarians and Romanians.

However, last week Blair, during his speech to the TUC, hinted he was generally in favour of allowing Eastern Europeans to work freely in Britain.

Rudd helped canvass for Mandelson in the 2001 general election and the Trade Commissioner has appeared at the millionaire's luxury birthday bashes. He is known to have connections within Blairite circles. His company was drafted in by government to help with the Railtrack crisis in 2002.

Finsbury was also caught up in the political spat over tuition fees. It was hired by Universities UK (UUK), which represents vice-chancellors, to provide them with political intelligence from within the Labour machine as they struggled to sell top-up fees to members of the Labour party ahead of a crucial vote in the House of Commons.

Rudd remains well known to politicians following his time as a political journalist on the Financial Times. Finsbury was bought by Sir Martin Sorrell's advertising giant WPP in 2001 for an estimated £50m, netting Rudd a fortune worth about £41m.

Rudd refused to comment on the dinner. A spokesman for Business for New Europe confirmed the event took place but refused to comment on what was discussed. 'It was a private dinner. The Prime Minister was invited and agreed to come. We would have spoken about the issues we believe are important.'

Sorrell, a member of the BFNE's advisory council confirmed the dinner took place and that he was invited but said he did not go. Asked why, he replied: 'I have a business to run.'

Euan Blair's time at Finsbury was designed to give him an overview of the communications business. Finsbury gives corporate strategic advice to a number of blue chip firms including BSkyB and J Sainsbury.

A Downing Street spokeswoman confirmed that the Prime Minister attended the meeting which she said was in June. 'He was invited to meet the advisory council of Business for New Europe, which he accepted,' the spokeswoman said. 'He met a group of eminent business people and the discussions were about reform of the EU.'