Mayor of Newham Sir Robin Wales has said that his council has written to 1,179 organisations around Britain asking for help accommodating people on housing benefit.
"It is not a policy I'm particularly keen on", he said, but with a housing waiting list of 32,000 they have to deal with the issue of "massive overcrowding".
"If you don't want to go, we will provide deposits, but there aren't the properties," he said.
But Housing Minister Grant Shapps said the move was "unfair and wrong" and that councils have been advised "not to do this".
Housing benefit "is still very generous", he said, paying up to £21,000 per year.
"It can't be right to have people able on housing benefit to live in streets and homes that hard-working people are unable to live in themselves," he said.
Mr Shapps maintained that "rents are actually falling, they've been lower than inflation for some time" and insisted that "within a 5 mile radius of Newham, there are 1,000 homes".
He accusing Labour-led Newham council of "playing politics".
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