The Observer newspaper reported on Sunday that Government officials have concluded that only one or two of the original 15 shortlisted eco-town projects are genuinely viable, according to an unnamed source "close to the discussions."

Co-operative Estates, which wants to build an eco-town on countryside it owns near Great Glen and Stoughton, has told The Mail it remains fully committed to its project.

Its plan was shortlisted in April as one of the Government's possible eco-town locations.

The Observer claimed bidders have been scared by the credit crunch, the collapsing construction industry and fierce opposition from residents.

A spokesman for Co-operative Estates told The Mail: "We remain fully committed to the eco-town and confident our investment will deliver a sustainable solution to the shortage of affordable housing in the Leicester city region."

The Government's Department for Communities and Local Government, which is behind the eco-towns plan, said the vision for ten such towns remains on track.

Spokesman Oliver Whitney-Coates said: "The extra homes of eco-towns are still needed and the challenge of climate change is not going to fade, irrespective of economic conditions.

"We have consistently said we are looking to build up to ten eco-towns and have made clear that we will shortlist up to ten potential locations by early next year."

Dr Kevin Feltham, chairman of the Campaign Against the Stoughton Co-op Eco-Town protest group, said: "The eco-town programme is falling apart.

"The original shortlist of 15 locations has already shrunk because some developers have withdrawn. Now we read there may only be one or two eco-town sites that are financially viable.

"It is time for the Government to come clean with the public and admit the financial crisis has claimed another victim – the eco-town project."