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The prime minister's chief of staff will now be employed directly by the government instead of through a private company, Downing Street has confirmed.

It follows the revelation that Mark Fullbrook was being paid through his lobbying firm, Fullbrook Strategies.

The arrangement had been criticised by the opposition and by some within the Conservative party.

No 10 has said Mr Fullbrook will be put on a special advisor contract to avoid "any ongoing speculation".

Liz Truss appointed Mr Fullbrook as her most senior aide earlier this month.

The news he had been receiving his salary for the role from Fullbrook Strategies, which was set up in March, came despite the firm's website saying it "has currently suspended its commercial activities".

One Conservative source told ´óÏó´«Ã½ News the arrangement was "very unwise" and that "people were rather disappointed".

Another source was more blunt, describing it as "tin eared" and "absolutely nuts".

Labour had described the reports as "shocking" and said they raised "serious questions about the new prime minister's judgement".

A spokesperson for Mr Fullbrook said on Sunday the arrangement was not unusual and that he derived no tax benefit from it.

Liberal Democrat Chief Whip Wendy Chamberlain said: "This U-turn raises more questions than it does answers, including about Liz Truss' judgement.

"Why did Number 10 spend days trying to defend this appointment only to backtrack when it came under scrutiny?"

She called on Downing Street to publish full details of Mr Fullbrook's outside earnings, shareholdings and any gifts or hospitality he has received since taking the job.

On Tuesday, a No 10 spokesperson said: "While there are established arrangements for employees to join government on secondment, to avoid any ongoing speculation Mark Fullbrook will be employed directly by the government on a special adviser contract."

They added that all government employees, including those joining on secondment, were subject to the necessary vetting and declared their interests in line with Cabinet Office guidance.