Attempts to bring to end the furore over MPs' expenses collapsed yesterday after two senior civil servants charged with resolving the scandal delivered competing verdicts and the Crown Prosecution Service said it was poised to decide if any politicians would face criminal charges.

Political leaders attempted to draw a line under the row with the publication of Sir Thomas Legg's devastating review of the "deeply flawed" expenses system. But Legg's own inquiry came under fire for being "sloppy" and "illogical" after it emerged that more than half of the MPs who appealed against his rulings were either partly or fully successful.

Last night it was reported that three politicians looked set to face charges of fraud or false accounting over their expenses claims. Keir Starmer, the director of public prosecutions, will announce his decision at 11am this morning. Those in the line of fire include the Labour MPs Elliot Morley, David Chaytor and Jim Devine, and the peers Lord Clarke, Lady Uddin and Lord Hanningfield. All deny wrongdoing.

Legg's retrospective review of five years of payments previously allowed by the Commons authorities demanded that 392 former and current MPs return £1.3m. His report condemned MPs and the "deeply flawed" and "vague" system they operated in. Decisions taken by the Parliamentary Fees Office "lacked legitimacy" and many were mistaken, it said.

But in an accompanying report, Sir Paul Kennedy, the former judge who was asked by the Commons to rule on appeals from MPs, said retrospective changes to the expenses rules imposed by Legg had unfairly tainted politicians' reputations – and returned £180,000 to the MPs.

"To describe any apparently genuine transaction as tainted, or breaching the requirement of propriety, when there is no evidence of impropriety, is damaging, unfair and wrong," Kennedy said.

He overturned 44 of 73 appeals made to him. In one he said that the Tory MP Peter Lilley could keep £41,057.36 in interest payments he had claimed, adding: "I am at a loss to understand why the [Legg] review should state what you did was not permitted."

It emerged that the Legg report cost £1.16m to compile, including a reported £142,000 for Legg's seven months of work. After the appeals, the inquiry led to a demand for £1.12m of the £1.3m to be repaid, of which £300,000 is still outstanding. Commons officials insisted that because some MPs had paid back more than they owed, the process would not cost the taxpayer overall.

On publication of the report, Harriet Harman, the leader of the house, immediately announced that new rules next week would allow the Commons authorities to dock the salaries of MPs who refused to pay up, promising that the row will spread beyond the 22 February deadline for repayment. Pleas from the Speaker, prime minister and leader of the opposition to put an end to the saga were overshadowed by the announcement that the Crown Prosecution Service will today reveal whether any MPs or peers will face charges over their expenses claims.

Morley and Chaytor were believed to have been investigated by the police inquiry for claiming thousands of pounds for mortgages that had already been paid off. As of last night none of the MPs under investigation had been contacted by the authorities. Devine said he was questioned by police before Christmas over the purchase of shelving units and electrical equipment, but had heard nothing since: "I'm very bitter about the way I've been treated. I've been hung out to dry. I made a mistake, but it was not corrupt."

Uddin was facing allegations over a £100,000 claim in allowances, and Lord Clarke of Hampstead, a former party chairman, admitted his "terrible error" in claiming up to £18,000 a year for overnight subsistence when he often stayed with friends in London or returned home to St Albans in Hertfordshire. Lord Hanningfield, a Tory peer and leader of Essex county council, was reported to be under investigation over whether he had returned to his home while claiming overnight allowances totalling £100,000 over a seven-year period.

Gordon Brown's spokesman said the Legg report was part of a wider process of restoring faith in parliament. "The PM feels very strongly that this is one part of restoring trust in the way our political institutions have been operating and continue to operate," he said. The Tory leader, David Cameron, said he hoped the publication of Legg's report would draw a line under the row. "That will help us to move on and actually build a parliament that people can trust."

But the clash between Legg and Kennedy fuelled the argument of a growing number of MPs who feel they have been unfairly tainted in the row. Some MPs – both those cleared of wrongdoing and those who were never accused – attacked the Legg inquiry. The Liberal Democrat MP Norman Baker, one of the fiercest critics of MPs' extravagance on expenses, nonetheless told BBC Radio 4's Today programme that Legg's process had been "sloppy", while the Tory MP Ann Widdecombe said the review had been "lazy, incompetent and illogical".

Ian Davidson, the Labour MP for Glasgow South West, who won an appeal against part of the repayment he had been told to make, said: "Legg was somewhat unduly rigid in his interpretation of the rules and seemed to be looking for ways of catching people out. When Kennedy looked at it, it was much more focused on the spirit of the law. It was right we had the opportunity to appeal."