Political storm after revelation that Whitehall cried foul over Leeds Arena's £10m

The grant has become a political football after the new coalition Government raised "concerns" over decisions which had been signed off by Ministers against the advice of civil servants in the dying days of the Labour administration.

Officials have admitted Business Secretary Lord Mandelson had to take the rare step of issuing written orders – known as Ministerial directions – to his most senior civil servant to force through the grant against official advice, effectively taking personal responsibility for the decision.

It was insisted the "wider social and economic benefits" of Leeds Arena justified the extraordinary action to approve the 9.9m grant after an initial bid for 18m had already been knocked back.

The project has been placed at the centre of a row sparked when Chief Secretary to the Treasury David Laws warned some recent Labour spending "may not represent good value for money" and said in some cases "the decisions seem to have been made against accounting officers' advice".

Ministerial Directions - seen as a last resort for Ministers adamant to approve spending when civil servants disagree – were used five times before the General Election this year, and nine times last year, a significant increase on the rate of two a year between 1990 and 2005.

But last night – as the FTSE 100 closed 2.8 per cent down on another day of economic turbulence – Labour responded by accusing the Government of kicking up a fuss about the use of Directions in an attempt to "blame their predecessors for the decisions they are to make".

Labour's Business spokesman Pat McFadden also accused the new administration of "threatening" support for industry by including an 80m loan to Sheffield Forgemasters in a review of Government spending.

Ex-cabinet minister David Blunkett, MP for Sheffield Brightside and Hillsborough, has challenged Deputy Prime Minister Nick Clegg, MP for Sheffield Hallam, to "pull his finger out" and ensure the scheme to equip the firm to become a world leader in nuclear power plant production goes ahead.

The company has been contacted by the Government to confirm the grant is being reviewed, but pointed out it had cross-party support and "substantial resources" were already being spent on preparations.

The Leeds Arena row fuels controversy over the plan which is fiercely opposed by South Yorkshire MPs who object to central Government funding for a project that could compete with Sheffield's own arena.

Yorkshire Forward wanted to invest 18m into the 80m project but that was turned down by a Whitehall Board. A revised bid of 9.9m was subsequently approved but only after the use of a Ministerial Direction.

Mr McFadden said: "The attack on Ministerial Directions is another attempt to blame their predecessors for the decisions they are to make. This is the oldest trick in the book for an incoming administration."

He added: "The Conservative and Lib Dem Council in Leeds lobbied hard for the Government to support the Leeds Arena – is the coalition now saying they would cancel support for this project which is vital to the city's future?"

Leeds City Council said it had already received 8.1m of the grant and there was a "contractual obligation for the remaining balance to be provided".