TONY Blair was accused yesterday of "blackmailing" North-East councils into setting up city academies which are largely run by private sponsors.

The Liberal Democrats said Middlesbrough, Sunderland and Newcastle authorities had all been told they would receive less education funding if they threw out an academy application.

But Schools Minister David Miliband dismissed the blackmail accusation as "completely untrue". Local councils were required simply to carry out "a proper evaluation of academy options", he said.

There are only 17 academies in existence so far, but the Department for Education wants 200 up and running by 2010.

They cannot charge fees but, in return for £2m, a sponsor can appoint most governors and senior managers and influence lessons within the national curriculum.

The Kings Academy, in Middlesbrough - sponsored by Wearside car dealer and evangelical Christian Sir Peter Vardy, through his Emmanuel Schools Foundation - has sparked particular controversy because pupils are taught "creationist" beliefs alongside Darwin's theories.

Critics say each academy costs about £25m to build - more than double the cost of a comprehensive school.

It emerged this week that Newcastle City Council had been told its £130m school-building plans were at risk if it failed to deliver a new academy.

Speaking in a Commons debate, Phil Willis, the LibDem education spokesman, claimed Middlesbrough and Sunderland councils had also been threatened with the same ultimatum.

He said: "They have been told specifically, by the minister, that 'unless you've an academy, you can't have the money'. I don't think that that is right, I don't think it's proper and I don't think it's fair."

But Mr Miliband replied that the Liberal Democrats had taken power in Newcastle in June "promising to have an academy".

He said: "The role of the sponsors has been completely misrepresented. Their sponsorship is purely philanthropic."