Ministers have been urged to scrap proposals for a new "city region" tier of government by the man leading their own review into local councils.

Sir Michael Lyons said the British had traditionally been suspicious of any attempts to impose new layers of government.

Instead, he said councils could simply work more closely together - as long as Whitehall let them make decisions about transport, housing and planning.

Sir Michael made his comments as Ministers were continuing work on proposals to revolutionise local government.

Options range from the creation of a formal "city region" which would have its own powers and possibly its own leadership in the form a directly-elected mayor.

David Miliband, the former Local Government Minister, has hinted he was in favour of such a scheme.

But since his replacement by Ruth Kelly in a Government reshuffle last month, it has been unclear whether the policy will be scrapped.

Proposals for a "Birmingham City Region" with its own mayor were also included in a report by the Institute for Public Policy Research, a think-tank with close links to Tony Blair, published earlier this year.

Ironically, Sir Michael helped launch the report at an event in Birmingham.

But giving evidence to the House of Commons Local Government and the Regions Select Committee yesterday, Sir Michael backed a very different scheme.

He said councils should simply be allowed to work together.

Sir Michael, the former chief executive of Birmingham City Council, is currently chairing an inquiry into the future of local government on behalf of the Chancellor, Gordon Brown.

He said: "We know the economies of major cities stretch far beyond their administrative boundaries."

It was "only sensible" for cities to try to work with their neighbours, he said.

He added: "Our history in this country is sceptical about multi-tiered government, so one might be cautious about introducing formal elected tiers."

He added: "I'm in favour of gradual change." Allowing existing councils to form voluntary partnerships would allow this to happen, he said.

However, he said it was important Whitehall gave up powers to local government.

He added: "There is a danger that the sheer weight of the growing number of Government targets and controls mean that councils look up to c entral government for instructions about what to do, rather than out to the local people it serves."

The report from the IPPR think tank identified a 13-district Birmingham city region, including Birmingham, Solihull, Sandwell, Walsall, Wolverhampton, Dudley, Coventry, Bromsgrove, Redditch, North Warwickshire, Tamworth, Lichfield and Cannock Chase. Its population was about three million.

The new authority would take over the duties presently performed by Advantage West Midlands, the Learning and Skills Council, the transport authority and the regional housing board - and benefit from the £675 million budgets of the organisations.

It would be under the control of an elected mayor.