The Scottish Government has dismissed a claim that its flagship local income tax policy could not be implemented.
The Treasury said the policy falls foul of the devolution settlement, since the tax would be set and collected centrally and not locally.
But Justice Secretary Kenny MacAskill insisted this was wrong and accused London of trying to undermine the policy to replace the council tax.
The SNP administration wants a local income tax set at 3p.
Under the devolution settlement, local government finance is a devolved matter.
"We are not in breach of the Scotland Act"
But the Treasury insisted that if the tax was not set or collected locally then it would be outwith the competence of the Scottish Government under the terms of the Scotland Act.
Mr MacAskill told BBC Radio's Good Morning Scotland programme that the Treasury view was "nonsense".
He said: "We as a government are getting on and replacing the unfair council tax with a fair system of taxation based on ability to pay, a local income tax."
The justice minister went on to accuse the treasury of trying to "bully" the Scottish Government.
"We are not in breach of the Scotland Act," he insisted.
Plans unclear
Scottish Labour leader Wendy Alexander said the row revealed flaws in the SNP's policy.
She said: "The SNP cannot say how much it will raise, how much it will cost to implement it and now they are unable to establish the legality of it."
Scottish Liberal Democrat chief whip Robert Brown said his party supported a local income tax but disagreed with the Scottish Government on how the rate should be decided.
She said: "There are differences between the Liberal Democrats and the SNP on whether the rate should be set by government or local councils.
"These are the issues which need to be discussed if we are to build a parliamentary majority in favour of change and overcome the Labour and Tory supporters of council tax."
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