A minister has branded a flagship coalition housebuilding policy "incoherent" and "unfair".
Local government minister Stephen Williams said his department's New Homes Bonus - which offers grants to councils based on the level of construction in their area - was having no real impact.
He also reportedly criticised an "absurd" cap on how far town halls can raise council tax without holding a local referendum.
The comments came as Mr Williams spoke to activists on the fringe of the Liberal Democrat conference in York over the weekend.
According to the Yorkshire Post, he said: "The New Homes Bonus - speaking freely as a Lib Dem MP - I'm not a fan of.
"I don't think it's an incentive, necessarily, for local authorities to give planning permission. I don't think it's actually driving decision-making on the ground."
Many districts were unable to host much extra housing for geographical reasons, he said. "It's not a fair opportunity," he added.
Turning to the coalition's 2% threshold for council tax increases, Mr Williams went on: "A referendum on tax rises is absurd.
The MP said the Government's planning policy was "constantly changing".
"(Tory planning minister) Nick Boles is hyperactive in that area - which is good in a way," Mr Williams said. "He's hated by a lot of Tory MPs - but he's quite a good colleague to work with in that he's thoughtful, he's creative, he knows his stuff."
Shadow communities Secretary Hilary Benn said: "Stephen Williams has thrown a flagship policy into chaos by admitting that the £1 billion New Homes Bonus is unfair and is not an incentive for house building or the giving of planning consent.
"Labour has already warned that all it does is give money to areas where homes would have been built anyway and takes it away from places in the greatest need.
"We are used to Lib Dems criticising their own Government's policies while voting for them, but it is extraordinary for a minister to comprehensively rubbish his own department's approach.
"On planning, it's an open secret that Nick Boles's constant tinkering has not made him a favourite of many Tory MPs, but now we have this confirmed by his colleague.
"Ministers have consistently claimed that local councils can absorb funding reductions by simply making efficiency savings and Eric Pickles has called the cuts 'modest'. Now Stephen Williams has admitted that some councils are facing 'severe financial difficulty' and questions about their 'viability'."
A spokesman for the Department for Communities and Local Government said: "Prior to 2010 councils could lose central government funding as a result of building new homes.
"Thanks to the New Homes Bonus, which was part of the coalition agreement, communities are now given a share of the economic growth from new housing.
"Councils have so far received £2 billion for delivering 550,000 homes, and they are free to spend this money in any way they choose for the benefit of their local area."