Almost five million people are on housing waiting lists
Equality legislation would torpedo plans to give local people greater priority on waiting lists for council housing, the Conservatives have warned.
The prime minister has told MPs he wants to allow councils in England to give additional preference to locals.
But Shadow Housing Minister Grant Shapps said the measure was a "sham" as it would be illegal under existing law and the forthcoming Equality Bill.
But this was denied by the Department for Communities and Local Government.
A DCLG spokesman said: "As we made clear, we are proposing a stronger role for Local Authorities so they can better allocate social housing according to their own needs and priorities, and will be changing the current rules to give them more freedom to do so.
"The Equality Bill will not run counter to what we announced yesterday. Indeed, authorities may well decide that local disadvantage could be addressed by giving greater assistance to local people with housing needs."
'Unable to deliver'
On Monday Gordon Brown pledged to "reform social housing allocation - enabling local authorities to give more priority to local people whose names have been on waiting lists for far too long".
The announcement was seen, in part, as a response to the growth in a few traditional Labour areas of BNP support.
But Mr Shapps said it would be scuppered by a new duty to tackle socio-economic disadvantage when making "strategic decisions" included in the Equality Bill, due to be piloted by Commons leader Harriet Harman.
He added that existing law also required councils to give "reasonable preference" to the homeless, people in overcrowded or unsatisfactory housing, and those with welfare or medical problems.
Mr Shapps said Mr Brown's remarks were merely "spin" which had been "pitched at Labour's disillusioned core vote".
He added: "Under existing legislation and Harman's new equality law, local people will not have priority for local homes.
"Housing waiting list policies need reform and we need more affordable homes. But Labour are unable to deliver the change we need."
Liberal Democrat spokeswoman Sarah Teather said Downing Street's "desperation for headlines" meant they were "robbing Peter to pay Paul".
She added: "We urgently need to build more social homes but cutting the Decent Homes budget is the politics of illusion. We need a real injection of finance into social housing."
Meanwhile, Austin Mitchell, who chairs the all-party group on council housing, has warned that money for improving existing council houses must not be diverted to pay for 20,000 extra new homes promised by Gordon Brown.
The funding of a £1.5bn building programme has also been questioned.
The Department for Communities and Local Government (DCLG) has been told to find half of the cost and has refused to rule out taking some from its Decent Homes Initiative.
Mr Mitchell said: "I am not happy at all that money will be transferred.
"The Decent Homes Initiative is an effort to meet the manifesto commitment of 2005 to make every council house and social house a decent house.
"Councils have been so squeezed financially that they are not able to complete the programme.
"We are cutting off our nose to spite our face."
Underspends in other Whitehall departments are to be used to pay for the rest of the cost of building the new homes, which was a key part of a raft of new policies announced on Monday, seen as an attempt to relaunch the government.
The Times reported the DCLG had refused to accept it would foot half the bill - but Downing Street has said reports of a row over where the money will come from are "simply untrue" and there was an agreement.
But a spokesman said the DCLG had still to finalise the details of how this money was to be "re-prioritised" from within its budget.
A DCLG spokesman denied any rift with Number 10 over the funding but said it was not yet ready to announce exactly where it would find the money.
A further £750m is due to come from under spending by other government departments, including health and the Home Office.
Housing minister John Healey will explain to council leaders later the outcome of a council housing finance review.
Mr Brown told MPs on Monday the government was consulting on whether to allow councils to keep all the money raised from council house sales and rent.
BBC local government correspondent John Andrew said he did not expect a return to the kind of mass council house building seen in the 1950s and 1960s.
But he said it would go some way to meeting the huge unmet demand for social housing as the number on housing waiting lists approaches five million.