MPs were so concerned by a lack of beds at a proposed £97m North-East hospital they considered scrapping it before a brick was laid.

In the end, the Government went ahead with the University Hospital of North Durham - ordered by the Conservatives - because starting again would have delayed the project by years.

The revelation that the hospital was almost cancelled in favour of a more ambitious scheme follows publication of a plan aimed at solving the lack of beds.

Officials are considering merging the hospital in Durham city with one in Bishop Auckland.

Critics believe planners seriously under-estimated the number of beds required.

But North-West Durham MP Hilary Armstrong insisted last night that the Government was determined to solve the problem.

She said the merger would result in a better service.

Ms Armstrong, the Government Chief Whip, said ministers considered cancelling the hospital, amid fears it would not have enough beds.

Ms Armstrong said: "We sat down and thought, 'do we really want to go ahead?'

"The consequences of not doing so would have been profound - in all probability we would have still been at the planning stages now. Durham would not have got the hospital it desperately needed for years.

"The issue was - and remains - a lack of capacity. We all knew the hospital was going to be too small. It was designed in the Tory years, when they were cutting back.

"I agreed with the decision to proceed, even if capacity was going to be a problem. My hope was to add on later."

Under the plan drawn up by Professor Ara Darzi, a senior advisor to the Department of Health, Bishop Auckland General Hospital would become the main centre for routine surgery in the county.

The university hospital would take on more complex operations and share the burden with Darlington Memorial Hospital.

By sending patients who need routine operations to Bishop Auckland, officials believe they can free up beds at Durham and Darlington for patients needing urgent treatment.

Ms Armstrong said it was no longer possible to create one-stop shops - hospitals capable of treating every kind of illness - in every town.

"Too much specialisation is needed to provide that kind of service in every hospital," she said. "It is far better to concentrate resources in centres of excellence capable of treating more patients quickly and efficiently."

Some doctors have suggested the university hospital may need an extension.

But Ms Armstrong said: "I don't think that is very likely. Some people may like that because it would mean they would not have to cooperate, but it would not satisfy the needs of the county."

She said the new arrangements would be of immense benefit to patients.

"Prior to this, the North-East had been starved of funds for nearly 30 years. I firmly believe this plan will lead to a better health service for us all.