'It'll be strange being called Lord Stephen, especially by my children,' says former deputy first minister

The list also included party donors including millionaire car importer Bob Edmiston and Conservative co-treasurer Stanley Fink, as well as Tory fundraiser Andrew Feldman.

Labour donor Sir Gulam Noon, the curry tycoon, was also honoured. Mr Stephen, who is standing down from Holyrood in May said it was "quite a surprise" to be given the new role.

The former Scottish Liberal Democrat leader joked: "I think it will take quite some time to get used to being called Lord Stephen - particularly by my children!"

The Aberdeen South MSP announced in September that he would be leaving Holyrood.

But he said his latest role would give him an opportunity to continue to be involved in politics.

Mr Stephen has enjoyed 28 years in politics which saw him rise from being a councillor to deputy first minister of Scotland.

Commenting on his new role, he said: "It came as quite a surprise to be asked by Nick Clegg to join the House of Lords. It is obviously a very considerable honour. It is also a great opportunity to continue to be involved in politics and carry on fighting for the interests of Aberdeen and the North East."

The inclusion of party donors such as Mr Edmiston and Sir Gulam threatened to renew the controversy over honours for political benefactors.

They were both questioned under caution as part of the 2007 police inquiry into whether loans were made in return for the promise of an honour. No charges were brought and the investigation concluded without a prosecution.

Scottish National Party MP Angus MacNeil, whose complaint to police sparked the cash-for-honours inquiry, said: "David Cameron should be mindful of the mess Tony Blair found himself in over the appointment of party donors to the Lords.

"There should be no link between donations and peerages, but we again have big donors being elevated to the Lords.

"The UK Parliament now has more unelected peers than it has elected MPs - another reason Scotland would be better off with independence."

Mr Cameron's spokesman, asked about the donations controversy, said: "There is an established process on appointing peers, and that is that they are vetted through the House of Lords Appointments Commission, and there is an established process on donations, which is that they have to be declared to the Electoral Commission."

Director of pressure group Unlock Democracy Peter Facey said: "If politicians and Prime Ministers want to reward their friends, instead of sending them to the House of Lords, what's wrong with a gold watch?

"People who make and amend our laws should be elected by the public, not selected for good deeds done in the past by grateful politicians."

Less controversially the creator of hit ITV period drama Downton Abbey Julian Fellowes becomes a Conservative peer.

Former Army chief General Sir Richard Dannatt is to take a place in the Lords as a crossbencher, despite being nominated by David Cameron when he was leader of the Opposition.

Divorce lawyer Fiona Shackleton, whose clients have included Sir Paul McCartney and the Prince of Wales, will become a Tory peer.

The Labour benches will be joined by Dame Joan Bakewell. Michael Grade, the former BBC chairman and ITV executive chairman, will also become a Conservative peer, as will businessman Sir Michael Bishop.

Tory ex-MPs who are to join the House of Lords include Howard Flight, the former Conservative deputy chairman forced to resign after being taped before the 2005 general election suggesting the Tories had secret spending cut plans. The others are Richard Spring, former chief whip David Maclean and Sir Michael Lord, who became deputy speaker of the Commons.

Additions to the Labour benches include Stewart Wood, a former adviser to Gordon Brown until after this year's general election. Labour Party general secretary Ray Collins and former Labour MP Oona King are also to receive peerages.