Chancellor Gordon Brown has promised town halls more cash in an effort to quell fears of another round of inflation-busting council tax rises.
Council taxes rose by record levels last year
In his pre-Budget report, Mr Brown said councils in England would get £340m of an extra £406m for UK authorities.
English council taxes rose by a record 12.9% on average last year and councils had warned the same could happen again.
The Treasury denied using panic measures and Mr Brown said ministers were ready to use capping powers.
In another olive-branch to council leaders, Mr Brown said the extra funds would not be ring-fenced, so town halls will be able to decide how they spend the money.
The cash was "to meet the needs and concerns of council tax
payers", Mr Brown told MPs.
"The government will, to ensure next year reasonable levels of council tax, be prepared to use capping powers where appropriate and necessary," he said.
Whitehall grants for councils were only announced a couple of weeks ago.
But asked whether the extra funds were a panic measure, the Treasury said the extra money had been unveiled in the pre-Budget report as the best way of getting the message across to councils.
Later, Deputy Prime Minister John Prescott said in the extra money meant the government had increased support for councils by 30% since 1997.
"The government, and council tax payers, now expect
local authorities to deliver," he said in a statement.
"Given this significant investment in local services and the scope for
efficiency improvements, it is my view that next year local authorities can and
should deliver council tax increases in low single figures.
"However, I repeat today that authorities, including police and fire
authorities, must be in no doubt that I am prepared to use my capping powers
next year if that proves necessary.
"Council tax payers do not want another round of high increases.
"If their councils think they do, why don't they allow local people to have
their say in a local poll?"
Local Government Association Labour group leader Sir Jeremy Beecham said the money was more than just "welcome sticking plaster".
"It points the way to a more fundamental change in local government finance
to a fairer, more transparent and accountable system which will allow people to
understand better the relationship between council spending decisions and the
local tax they have to pay," he said.
"This new money may not be enough to prevent above-inflation council tax
rises in many areas, but it will certainly help.
"Councils will do their level best next year to keep council tax rises as low
In the House of Commons, shadow chancellor Oliver Letwin branded council tax rises the "least
acceptable face" of Labour's tax strategy.
They were creating havoc, he argued.
Later, Conservative shadow local government secretary David Curry said: "After having assured us that the local government settlement was adequate, Labour are now panicking and topping up funding with a further £406m.
"This last minute repair job proves our point that the settlement was flawed in the first place.
"This is an emergency injection of funds as John Prescott's running of council tax evolves from debacle to major crisis."