David Cameron faced embarrassment yesterday when one of his parliamentary candidates for a key marginal seat quit after being arrested in connection with a hate campaign against rival politicians.

Ian Oakley, 31, resigned as the Conservative parliamentary candidate for Watford after the allegations were made. He is on bail pending further police inquiries into “a series of criminal damage and harassment offences”. He has not been charged.

The seat, where the sitting MP, Labour’s Claire Ward, has a majority of just 1,148 votes, is one of the Tory party’s key targets.

Oakley, a Durham University graduate who used to work for the Financial Services Authority, won the selection contest in an American-style open primary, a high-profile Cameron initiative.

He lists the shadow cabinet members Chris Grayling and Grant Shapps, and the “chick lit” author Louise Bagshawe – herself a Tory candidate – as friends on his Facebook entry.

The Conservative party last night confirmed that Oakley was on bail following questioning about three possible offences.

Liberal Democrats in Watford claim they have been the victims of a campaign over the past 3½ years involving criminal damage, poison pen letters and nuisance calls.

According to the Lib Dems, senior party activists in the area have received offensive literature through the post, been subjected to anonymous telephone calls in the middle of the night, and been targeted in whispering campaigns.

Party sources claim there have been at least 100 incidents of vandalism involving property and vehicles belonging to local party activists, sometimes repeatedly at the same address.

In an incident that caused widespread anger in Watford, a leaflet purporting to be from the Lib Dems, and expressing support for the building of a new mosque next to an existing one, was delivered to scores of householders.

The leaflet allegedly decried anyone who opposed the controversial mosque development as racist.

At the time of the incident in February, Mike Jackson, chairman of the Watford Labour party, said the document had “all the hallmarks of the far-right neo-Nazi parties” and was a deliberate attempt to “stir up tension against minorities”.

Hertfordshire police’s major crime unit was drafted in to investigate last year after six poison pen letters making allegations against a Liberal Democrat councillor, Mark Watkin.

Lib Dems claim that fake and anonymous leaflets circulated to the public in Watford have falsely alleged that certain councillors and candidates were convicted sex offenders.

Suggestions that a Tory candidate might be associated with any such offences will cause dismay at Conservative campaign headquarters, where the party’s local government spokesman, Eric Pickles, advocates a so-called “love bomb” strategy for local election campaigns, designed to dispel the Tories’ old “nasty party” image.

A Conservative party spokesman said it would be “inappropriate” to comment further.

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