Local government leaders are warning that the cost of looking after the huge influx of immigrants from former Iron Curtain countries could see council tax bills increase by more than twice the rate of inflation.

The alternative would be widespread cuts in services.

Local authorities are becoming increasingly concerned at the arrival of hundreds of thousands of economic migrants following the expansion of the European Union in 2004 - a trend which is already putting pressure on schools, hospitals, housing and social services.

At the centre of the dispute is a row over the accuracy of Government population estimates.

Figures issued by the Department for Work and Pensions, showing applic ations from non-UK nationals for new National Insurance numbers, bear little resemblance to the Office of National Statistics analysis of immigration.

The DWP figures suggest that far more people are coming into the country than is estimated by the ONS.

Since Government funding for councils is decided on population estimates, local authorities fear they are being short changed and not receiving enough grant to meet demand for their services.

Last week, 25 councils including Birmingham, Sheffield and 14 London boroughs, held an emergency meeting at which it was agreed that they should put pressure on the Home Office to produce reliable figures. They warned of an average six per cent increase in council tax next year if the Government did not increase local authority funding.

Lord Bruce-Lockhart, the chairman of the Local Government Association, wrote to Dr John Reid, the Home Secretary, urging him to "establish the facts" about immigration.

Last weekend, Dr Reid called for a mature debate about immigration and indicated that an independent body could draw up limits on the number of immigrants Britain is prepared to accept.

Lord Bruce-Lockhart said in his letter: "There are a number of local authorities for whom the current system of measuring the number of migrants in specific council areas is failing to ensure adequate funding to keep council services to local people maintained.

"Councils are finding it difficult to provide services to growing populations that are not recognised by Government statistics.

"Working migrants have become an invisible population whose children need school places, who need to be housed appropriately and in some cases need social services. Official statistics have failed to reflect this.

"Unless accurate up-to-date figures on migration are produced, so that the proper funding to councils can be reflected, this could pose severe problems in the future as services are cut or council tax has to rise for growing migrant problems."

Applications for new National Insurance numbers show a sharp rise from 2004, the year that the EU was enlarged to take in eastern European countries. Ministers claimed at the time that 13,000 immigrants would come to Britain and argued that they would help the economy by supplying cheap labour.

Cities like Birmingham and Coventry have seen a huge rise in new EU citizens, particularly Polish nationals, taking low-paid jobs in the tourism and leisure industries.

Government grants to Birmingham City Council has risen from £908 million in 2002/03 to £1.1 billion in 2005/06 - a 22 per cent increase.

Lord Bruce-Lockhart said Britain had been one of only three EU countries which allowed unlimited numbers of migrants from those countries.

A spokesman for the Department of Communities and Local Government said: "Government distributes formula grants to local authorities using the best statistics that are available on a consistent basis."