Council chiefs, who were ordered to pay another North-East authority more than £1m, say they have a strong legal challenge against the decision.

Durham County Council was forced to pay Darlington Borough Council £2.2m earlier this year after losing a bitter arbitration battle which began in 1997. The county was also ordered to hand over £1.1m interest which had built up over the past six years.

The wrangle came after Darlington split from the county council, following a local government shake-up, with the borough demanding its share of a £12m local development fund.

But, despite losing and having to pay the costs of the case from the public purse, Durham is appealing against the award of interest.

The Northern Echo can reveal the county council will argue that, because ownership of the £2.2m had been uncertain for six years, interest is only payable from the date of the arbiter's decision.

County council leader Ken Manton said: "Interest only became payable from the date on which the arbiter ruled that the £2.2m should be paid to Darlington, not from the date on which Darlington first staked its claim.

"Given the significant amounts involved in this matter, both in principle and interest, compared with the costs of going to arbitration, we feel fully justified in the action we have taken and continue to take."

The row between the two councils - which also have to resolve the issue of ownership of shares in Teesside Airport - continued yesterday.

Coun Manton hit out at Darlington council for refusing to accept an out-of-court offer before the original case went to arbitration.

"Darlington agreed all those years ago that they wanted to go to arbitration, so we are carrying on with that agreement," he said.

John Williams, leader of Darlington council, said yesterday: "They should pay us now without any further delay - not to do so is wrong.

"This money belongs to Darlington. It's ours to be used for the benefit of the Darlington community, not for people living in Durham."

The £12m capital reserve fund for local development was a mix of Government grants and council tax.

Darlington's case, that it was entitled to a share after the split from Durham, was backed by the London arbiter.