Councils were surprised by Tuesday's announcement from housing minister David Curry that he was curtailing yet another local government power, by changing rent subsidy rules.
The proposals contradict long-standing government policy to push up council rents to market levels and obligations placed on councils to consult with tenants on service levels.
Housing commentators said the changes showed social security secretary Peter Lilley was running rough-shod over the DoE's housing policy.
Mr Curry said the changes to subsidy rules were designed to encourage councils to keep inside government-set rent guidelines and act as a 'spur for them to use opportunities such as compulsory competitive tendering to improve efficiency, bring costs down and provide tenants with better services'.
The new rules entail using the guideline rent to set a limit for rent rebate subsidy.
The Association of District Councils said councils would have to meet the cost of housing benefit to cover any rent increases agreed above government guidelines.
'The government cannot claim to promote local democracy on the one hand while imposing unreasonable restrictions on the other,' said ADC housing chair Paul Jenks.
Mr Meehan said the government was 'panicking over the wrong element of the housing benefit bill'.
He said housing benefit subsidy to council tenants had increased by 10% over the six years to 1996, but had quadrupled for the private rented sector.
The changes will hit levels of service to tenants particularly hard because the overall level of management and maintenance subsidy is being frozen at this year's level of £3.4 billion.
'Many local authorities are suffering a reduction in subsidy but will be prevented from increasing rents to make up the shortfall,' said Paul Lautman, housing assistant secretary at the ADC.
Mr Curry tried to soften the blow by restricting rent increases next year to less than the rate of inflation, a long-standing demand of councils. This will give an average weekly rent of £34.70 and lead to increases ranging from 67p to £1.17 a week.
He justified the restrictions by claiming actual rents set by councils since 1990-91 had increased by 33% in real terms compared to the guideline increases of 22%.
He said spending on council housing had continued to rise while the number of houses had fallen, with the cost being picked up by tenants and general taxpayers.
But Mr Lautman said this failed to recognise that the gap between actual rents and guideline rents had been reduced in recent years.
'We are not behaving in a way which could be construed as irresponsible,' he said.