The Ministry of Defence is selling off around 250 acres of the garrison to finance new capital projects and much of the land is likely to be used for housing.

But officials are concerned that Rushmoor Council demands for up to 40% of any new housing development to be "affordable" could severely cut land sale receipts and bring the viability of the whole project into question.

There is also concern about the level of financial contributions expected from developers and the need to maintain flexibility within the project.

Project Connaught is part of a £3.6billion programme to build new barracks and army buildings across Aldershot and Salisbury Plain.

The move is needed to upgrade ageing facilities and provide single living accommodation for around 10,000 soldiers.

More than £220million is to be spent on capital projects in Aldershot, with decrepit barracks such as Montgomery Lines — considered the worst in the British Army — demolished and sold for development.

A further £1billion will be paid to a company or consortia to manage the military estate over the next 30 years.

The MoD is hoping to raise around £130million through land sales but fears the demands for a large proportion of affordable homes could cut that figure by up to 25%.

The land would be less attractive for developers who would prefer to reap higher rewards by building more expensive homes.

In a letter to Rushmoor Council chief executive Andrew Lloyd in May, the project's Lt Col Richard Cobbold said: "When the preparation of land for disposal and its phased release over eight to ten years is also considered, the viability of meeting all the requirements currently within the scope of the project is affected to the extent that we may need to review our plans for barracks in Aldershot and elsewhere.

"It is, of course, the requirement for affordable housing which has the most significant impact on our original valuations.

"One can not but see a paradox when a key project objective, to provide good accommodation for single soldiers, largely young and on low wages, is potentially being jeopardised by a policy to provide homes for a broadly similar part of the population."

Rushmoor's cabinet committee officially adopted the planning guidance at a meeting on July 30, during which Mr Lloyd said he did not believe the "scare-mongering" comments would come to fruition.

Cllr David Clifford criticised Lt Col Cobbold's letter, saying: "They (the MoD) are making huge profits from the sale of this land and they want to maximise that.

"They give the impression they are prepared to do that at the expense of local residents. I find that extremely distasteful."

Cllr Roland Dibbs said the council was caught between conflicting pressure from two government departments.

Deputy Prime Minister John Prescott wants councils to emphasise the need for affordable homes while the MoD wants a smaller number in this instance.

"It will end up with the big guns of Mr Hoon against the big ego of Mr Prescott," Cllr Dibbs quipped.

The council has agreed that the planning guidance may be reviewed at a future date if hard evidence is brought to light that the viability of the scheme is being jeopardised.

Project Connaught officials were playing down the dispute on July 31, issuing a statement saying: "MoD have been working in close co-operation with Rushmoor Borough Council for some time and very much welcome the planning guidance that will inform how future development is taken forward in years ahead."

The MoD has shortlisted three consortia for Project Connaught and is scheduled to announce the preferred bidder next summer.

Construction work is scheduled to begin in April 2004.