Conservative leadership candidates Boris Johnson and Michael Gove are facing growing calls to account for illegal behaviour by the official Vote Leave Brexit campaign.

The group has dropped its appeal against the Electoral Commission’s ruling that it broke the law by channelling hundreds of thousands of pounds of donations to an ostensibly independent campaign group, BeLeave.

When the Observer revealed evidence a year ago that Vote Leave had broken spending rules, Johnson attacked the report on Twitter as “utterly ludicrous” and said it had “won … legally”. A Johnson adviser said on Saturday that the former foreign secretary would not comment on the end of the appeal.

Labour deputy leader Tom Watson called on Johnson to recognise the campaign acted illegally. “I’m sure the man who seeks to be your prime minister will acknowledge … Vote Leave broke the law,” he said on Twitter.

Gove has previously said the appeal prevented him from commenting on the ruling, but his office did not respond to a request for a comment now the legal process has ended.

Anna Soubry, the former Tory MP who joined the Independent Group, called for a full explanation from both men, and dismissed the claim the appeal had been dropped for financial reasons.

“The one thing we do know, all these people have access to considerable amounts of money, so to say they are dropping it for lack of funds is absolutely ludicrous,” she said.

“Johnson and Gove should be providing a full and proper explanation to the British people following the dropping of this appeal.” She added she expected to one day see a “public inquiry into what happened and how we got into this terrible mess”.

Gove and Johnson played key roles in Vote Leave, Gove as co-convener and Johnson as a figurehead for the official Brexit campaign. A series of other senior government or Tory figures also sat on its committee, including Liam Fox, Iain Duncan Smith, former Brexit secretary Dominic Raab and the former international development secretary Priti Patel.

Labour MP David Lammy called for an update on a police investigation into the campaign. The commission has shared its files with the police to investigate if any other offences had been committed outside its remit.

“There are profound questions for our democracy about whether senior cabinet ministers are now above the law. The Metropolitan police and National Crime Agency need to act urgently to update the public on the extent and breadth of their investigation,” he said. “It’s also deeply worrying that the political establishment seems mute on law-breaking at the highest level.”

Whistleblower Shahmir Sanni says he feels totally vindicated after Vote Leave dropped its appeal. Photograph: Teri Pengilley for the Guardian

There has been no government response to the appeal being dropped and little media coverage. And while national broadcasters and newspapers gave prime coverage to Vote Leave chief executive Matthew Elliot when he launched an aggressive media campaign against the watchdog’s initial findings, few covered the decision to to end the appeals process in any depth.

After the announcement, whistleblower Shahmir Sanni, who was outed by a member of Theresa May’s team, lost his job and was vilified as a fantasist after his revelations about Vote Leave’s spending, said: “The [end of the appeal] feels extremely vindicating, but the way the media has responded to it has been extremely disappointing. The only excuse they had is that they were appealing. Now we know they broke the law, they need to be held to account.”

Liberal Democrat MP Layla Moran said the confirmation that Vote Leave had broken the law underlined the need for a second referendum.

“It is now incumbent on the government to act. We have heard minister after minister say the referendum is valid. This is proof it was not,” she said. “Going ahead with Brexit in these circumstances would be the biggest betrayal of our democracy of all.”