Iain Duncan Smith has attacked the prime minister over council tax rises.

Challenging Tony Blair at prime minister's questions on Wednesday, the Conservative leader said the property levy was now "the biggest stealth tax of all".

But Blair defended the government's record, insisting that local authorities had been funded "generously" from Westminster.

Duncan Smith began by asking whether Blair agreed with local government minister Nick Raynsford who said recently that council tax rises had "reached the limits of acceptability".

"Would the prime minister agree it would be unacceptable to rise further?" he asked

The prime minister he was prepared to "use capping powers if necessary in respect of unacceptable council tax rises", but reminded MPs that it was for "councils to decide their levels of council tax".

Duncan Smith then pointed out that the Treasury was expecting large council tax increases over the coming years.

"Why does the Red Book say that the chancellor is banking on council tax increases of 13.5 per cent over the next two years?" he asked.

"The average family is now paying over £1,000 in council tax... and that is set to increase by £150 more over the next two years."

Blair repeated his defence of the government's local authority funding policies.

"The responsibility of the government is to fund local councils generously," he said.

"A 25 per cent real terms increase since we have come to power is I think a very generous increase."