The Diana Memorial Committee, which was set up to advise the government on how Diana's life could best be remembered, originally proposed a 2.7 acre flower garden close to Kensington Palace in London where the princess had lived.

Diana, Princess of Wales: Memorial plans

But fierce resistance from residents in Kensington fearing tourist traffic and congestion, has led to a change in plans.

In a House of Lords debate on Tuesday, Lord McIntosh, for the government, stressed that no final decision had yet been taken by the committee, chaired by Chancellor Gordon Brown.

However, he said: "I don't think it would be pre-empting their discussions to say that the proposals are expected to be scaled down in response to local concerns."

Lord McIntosh did not confirm newspaper reports that the original £10m plan had been reduced to one costing £3m, including a walkway to St James's Park.

Gordon Brown: No final decision

During the debate, several Lords spoke in favour of the creation of a chain of playgrounds in deprived, inner city areas.

Labour peer Lord Strabolgi said the proposal was more appropriate and more in keeping with the late princess's charitable work and her ideals.

Conservative ex-minister Lord Blaker agreed, saying: "It would be a suitable follow-up to the public playing fields which were created in memory of King George V."