Sir Keir Starmer could face a revolt from his own MPs over plans to house asylum seekers in newly-built council homes.
Around 200 local authorities are said to be keen on the scheme, which would fund the construction of new properties or the refurbishment of abandoned sites for asylum accommodation.
They include Brighton and Hove, Hackney, Peterborough, Thanet and Powys.
However, several Labour MPs are pressuring the Prime Minister not to go ahead with the plans.
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One Labour backbencher, speaking on condition of anonymity, branded the initiative "bonkers" and predicted it "will go down awfully in Red Wall seats".
They told the Daily Mail: "I've told the Home Office I'm against it and they need to U-turn on it in my seat."
Graham Stringer, the Labour MP for Blackley and Middleton South, condemned the initiative as "unacceptable", saying there is already a "shortage of council housing that should be going to local people".
A Government spokesman however, rejected the plans, saying: "New council housing will not be used by asylum seekers under any circumstances.
Labour MPs called on Keir Starmer to not go ahead with the plans
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"This Government will close every asylum hotel.
"Work is well underway, with military sites brought forward to ease pressure on communities and cut asylum costs."
Latest Home Office figures show the number of asylum seekers being temporarily housed in hotels increased by 13 per cent to 36,273 at the end of September last year.
The Government said 197 hotels were being used to house asylum seekers as of January 5, down from more than 400 at its peak under the previous Government.
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The first group of migrants were moved into a former military barracks in East Sussex last month
|PA
The first group of migrants were moved into a former military barracks in East Sussex last month.
Some 27 men are being housed at Crowborough training camp, where the Home Office plans to accommodate up to 500 men as it bids to end the use of asylum hotels.
The move sparked opposition from neighbours of the camp and the local authority, Wealden District Council, said it was considering legal action.
Crowborough is one of two military sites the Government announced last year that it would use to house asylum seekers, along with Cameron Barracks in Inverness in the Highlands.
The Crowborough accommodation has around-the-clock security with CCTV and strict sign-in processes for residents, the Home Office said.
They will also have completed health and police checks before arriving at the base.
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