Treasury chief Danny Alexander agreed the cash to fill a funding gap identified when the Coalition government came to power.

The move was part of a wider review by the Treasury of £9bn of funding promised by Labour which was dependent on underspending by other government departments

HCA leaders feared they would lose all the £610m promised by Labour. But the new settlement of £390m will now fund social housing, Kickstart programmes and local authority homes currently on hold.

Alexander announced total cuts in funding of £1.54bn from the original £9bn across all sectors.

He said: “The previous Government committed to spending money it simply did not have, but this Coalition Government has taken action to address this serious situation.

“The decisions have not been easy, but the understanding and co-operation of my Cabinet colleagues has enabled us to act swiftly to ensure that the nation can live within its means.”

The HCA will lose £220m following the announcement which comes on top of £230m of cuts, to affordable housing, Kickstart, housing market renewal and gypsy and traveller funding, announced by the government within the first few weeks of taking office.

The HCA will now decide which schemes to progress with under its reduced budget.