Labour has been accused of using councillors' publicly-funded allowances to help pay off party debts.
The Tories are calling for an inquiry by watchdog the district auditor after Labour changed its rules about levies from its local councillors.
Labour said the cash was used to support its local group activities.
But the Tories say a leaked memo shows funds are being sent to Labour Party headquarters rather than to fund local party activities.
Sleaze watchdog the Standards Board for England said it had received a complaint from an ex-Labour councillor.
Northumbria Police have also confirmed they have received a complaint from a former leader of Sunderland Council, Bryn Sidaway, who quit in protest at the levy.
Mr Sidaway told the BBC that he was threatened with disciplinary action for refusing to give 3% of his £7,106 allowance - about £215.
"I think this is a national scandal. What they are saying is...if you don't cough up then you'll have to pay the consequences - we'll kick you out of the party.
"So, I thought this is not natural justice. It's an imposition of the worst kind and it's all about cash to fund what is basically mismanagement of Labour Party funds."
It would be wrong for some councillors not to contribute to something that they all benefit from
Labour MP Martin Salter, speaking on BBC Radio 4's World at One, said: "I am quite happy for the Standards Board to say whether or not it is appropriate for payroll deductions to take place.
"Payroll deduction is a regular and well-used source."
All three main parties take a personal levy from their councillors to help with local running costs.
The Tories and Lib Dems say Labour is different because it uses the council payroll to deduct levies.
Labour councillors have always made compulsory donations to the Association of Labour Councillors, but changes approved at its annual conference in September made a second contribution - to Labour group funds - also compulsory.
Councillors face expulsion from their local Labour group if they refuse to pay.
The changes, according to the memo circulated to local parties, are to improve the collection of subscriptions and make it more convenient for councillors.
The Tories, who say they do not force their councillors to fund party activities, charge a £25 a year fixed fee for professional support from the Conservative Councillors Association.
They estimate the new Labour levy could raise at least £1.9m for the Labour Party across its 6,200 councillors. The Labour Party has debts of £14.9m according to its 2005 accounts.
"It is scandalous that the Labour Party is systematically abusing councillor allowances and attempting to avoid bankruptcy by using council taxpayers' money to bail the party out," said shadow minister for local government Eric Pickles.
"At a time when council tax has gone through the roof, families and pensioners will be shocked to learn that their bills are not being used to clean the streets or empty bins - but instead, to give covert cash payments to the Labour Party direct from the council payroll."
He said he feared Labour councils would now push for bigger salaries for councillors - or even cut local services - to help fund the levy.
Labour insisted the cash is being used to support the activities of the councillors' party group on the council - not head office.
In a statement, the party said: "Labour councillors agree to abide by Labour Party rules, including the payment of a group levy. This levy is from councillors personally and not the council.
"The rule changes debated by the NEC (national executive committee) and the full, open, annual conference this September in Manchester established that all Labour groups should, as many do already, levy all councillors to contribute to group activities and administration.
"The groups themselves levy, collect and spend the money raised for the benefit of the whole group and it would be wrong for some councillors not to contribute to something that they all benefit from."
Labour also said that all political parties ask for contributions for services undertaken for and on behalf of councillors.
A spokesman said any local group could decide to collect this levy via the council payroll system, which was often the "most efficient way to collect money".
He added: "This is exactly the same method commonly used by employees for their trade union contributions, pension contributions, charitable donations, PAYE and other payments.
"Any costs associated with this process are paid by the Labour group and not the council."
The Liberal Democrats said allowances were paid to reimburse councillors for the time and expenses involved in carrying out duties and it was up to councillors to decide what they do with it, including whether it goes back to the national party.
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