A Palestinian group, whose founder once praised the militant Islamist group Hamas, held a fundraising dinner at which it collected £10,000 for Jeremy Corbyn’s last leadership campaign, documents seen by the Observer reveal.

Friends of Al-Aqsa gave Corbyn’s team a cheque for £10,000 in August 2015, an investigation by this newspaper has found, although the gift has never been made public.

Corbyn’s campaign said it did not declare the donation because its bank subsequently rejected the cheque as it was made out to the wrong person. Any donation above £7,500 should be declared to the Electoral Commission.

A spokesman for Corbyn was unable to explain on Saturday what then happened to the cash raised. A spokesman said: “I’m told a second cheque may have been sent but this was not received by the campaign.”

A spokesman for Friends of Al-Aqsa declined to comment. The organisation was founded by Ismail Patel in 1997 to highlight the plight of Palestinians in Israel, although it has been caught up in a series of controversies. In 2009 during the bombing of Gaza by Israel, Patel told a rally: “Hamas is no terrorist organisation. The reason they hate Hamas is because they refuse to be subjugated, occupied by the Israeli state, and we salute Hamas for standing up to Israel.”

Last year the organisation’s bank account was closed by the Co-op bank, which said it was not a reflection on the organisation’s work, but part of due diligence to ensure accounts sending money abroad complied with anti-money laundering rules and to ensure that funds “do not inadvertently fund illegal or other proscribed activities”.

Patel was also a spokesman for the British Muslim Initiative, an organisation that the Daily Telegraph has claimed has links to Hamas.

Only one donation from the Friends of Al-Asqa’s fundraising dinner has been declared. Ibrahim Hamami, who the Telegraph has claimed is an opponent of the Oslo peace accords, and wrote in support of a wave of stabbings of Jews in Israel in 2015, gave £2,000 to Corbyn, the register of MPs’ interests shows. Approached at the time by the Telegraph, he said: “I am not answering your questions. Get lost.”

John Woodcock, the Labour MP for Barrow and Furness, said: “These revelations raise incredibly serious questions about the probity of the campaign’s finances and the relationship between Mr Corbyn and this organisation. We need Mr Corbyn to give full and frank explanations.”

Initially a spokesman for Corbyn, when questioned about the £10,000 cheque, denied that it had been cashed while refusing to confirm that it had been received by the Corbyn campaign.

The spokesman instead said that Patel had “definitely donated” along with “a couple of others” but that it had been declared, adding: “There is nothing dodgy going on.” When told that there had not been any declaration in the register of interests, the spokesman said he had spoken in error.

The Corbyn campaign’s relations with the Friends of Al-Aqsa, and reluctance to disclose details about the cheque, comes at a difficult time for the Labour leader.

Corbyn has been heavily criticised for nominating Shami Chakrabarti, the civil rights campaigner, as a Labour peer, after she delivered an independent report into the state of antisemitism in the Labour party which has been criticised by some as a whitewash.

Haras Rafiq, managing director of the Quilliam thinktank, and a former member of a government taskforce looking at countering extremism in response to the 2005 terrorist bombings in London, criticised Corbyn’s relationship with Friends of Al-Aqsa. He said: “It’s a reflection of the regressive left.”

Corbyn’s spokesman said that a second £5,000 cheque from an organisation called LACCA on 4 August, which was not declared, had also not been cashed because it was made out to the wrong person.

Asked who LACCA was and what had happened to that money, the spokesman said: “Whoever LACCA are, they didn’t donate.

“There is no record of another cheque being received. It was quite late in the campaign and there was no need for funds at that time.”