Local authorities were today warned they may face a new round of capping if they do not curb council tax rises further.

Local Government Minister Nick Raynsford indicated the threshold for the Government to place a limit on the increases would be lowered.

It followed the announcement that councils in England would receive an additional £3.5 billion from central Government in 2005-6 compared with the previous year.

This represented a 6.2% rise and Mr Raynsford told MPs he expected councils to continue to bring down rate rises.

Despite last year's 5.9% increase being the lowest in almost a decade, he said he wanted to see a national average of less than 5% next year.

However the minister said there was not yet any specific target about what the new level for capping councils would be.

When asked if the threshold for capping would be lower.

He said: "That would be a perfectly reasonable assumption but there is no specific target and there is no specific threshold."

Earlier this year six councils had their budgets capped by the Government.

Mr Raynsford praised councils such as Sandwell, which has kept rises down to 1.9%, saying it was "something that many other authorities should be aiming to achieve".

Earlier today Chancellor Gordon Brown announced that he was pumping approximately £1 billion into local government finance.

This included a controversial re-allocation of £512 million from Whitehall departments which was thought to have angered senior civil servants.

There was also £125 million of new money as well as around £330 million from a reduction in ring-fencing and other obligations faced by local authorities.

Regulations would be altered to allow councils to charge extra through licensing fees, planning fees, or for Freedom of Information services.

Mr Raynsford said: "This is a package of measures designed to give extra funding and to help local authorities either to raise additional finance themselves or to mitigate the costs they might have to meet.

"That package comes to approximately a billion pounds from the Chancellor."

Officials said that the total £637 million extra cash announced by Mr Brown was part of the total £3.5 billion extra announced in the funding settlement.

Mr Raynsford denied that the extra cash for councils was a "political fix" to keep rate rises down ahead of a General Election.

He said there had been an increase in local government settlements year-on-year.

"That is not short-term expediency. That is long-term commitment to local government," he added.

Local authorities had warned they faced a £1 billion funding shortfall, saying unless Mr Brown plugged the gap council tax bills would rise by 10%.

Tory local government spokesman Eric Pickles said: "The small print of Gordon Brown's report reveals that the council tax take across Britain is due to soar by a massive £1.6 billion this year - equivalent to four times the rate of inflation.

"Council tax has already shot up by 70% since 1997, and it is clear it is going to through the roof for yet another year. All we've seen today is another ploy by the Government to increase the tax take on Britain by stealth."

Liberal Democrat local government spokesman Edward Davey said: "The council tax system is now in permanent crisis - with every Pre-Budget Report now used to force rises down.

"Despite cuts across Whitehall to plug the gaping hole in councils' finances, there's still a danger the unfair council tax will rise by up to four times inflation."