Council house tenants in property hotspots are to be given less assistance in buying their homes, the government has announced.

Announcing new restrictions on the right to buy, John Prescott is to reduce the maximum discount available from £38,000 to £16,000.

The move is aimed at cooling the over-heated housing market in parts of London and the South East.

It is also intended to crack down on exploitation of the scheme.

Critics say that speculators are making large profits from selling on council properties bought from tenants.

Under fire from Tory criticism, Prescott maintained he was "totally committed to the principle of right to buy".

"We are not abolishing the scheme, but modernising it," he insisted.

The deputy prime minister said the reforms were necessary to bring the policy up to date with the modern housing market.

"Right to buy has changed little over the past quarter of a century, despite the major transformation of much of the housing market," he said.

"In certain housing crisis areas, right to buy has had an adverse effect on the supply of affordable housing."

Cash saved through the reform, which comes into effect in March, will be put towards social housing projects, the government said.

Homelessness charity Shelter welcomed the proposal, saying the government had made "the right choice".

Their spokesman Ben Jackson said local authorities "must use these new powers to retain valuable housing stock and offer hope to the tens of thousands of homeless people who are currently forced to live in appalling conditions".

But the Conservatives, who set up the right-to-buy scheme under Margaret Thatcher in 1980, have called the change an "utter disgrace".

The party says the policy should be extended and offered to tenants living in housing association properties.

Spokesman David Davis, who shadows the deputy prime minister's department, said that "John Prescott is taking away the rights of council house tenants in a shabby attempt to cover up his own government's failure on social housing".

"Far from cutting right-to-buy, the best way to tackle the lack of affordable housing, especially in 'house price hot spots', is to increase it," he said.

He also chastised the government for failing to make a statement on the subject in the House of Commons. Instead Prescott broke the news in a written statement to MPs.

"Many of these tenants will find it inexcusable that he has refused to come to the Commons today to make his statement," Davis said.