by political editor Paul Francis

The Audit Commision says it is standing by its claim that Kent County Council was negligent over the £50million deposits made with three Icelandic banks.

The public spending watchdog has come under fire from 's Conservative administration, which has lodged a formal complaint over a report examining the circumstances surrounding investments in Icelandic banks by UK councils.

The report identified seven authorities, including KCC, that it claimed had acted negligently. However, the Audit Commission says it has no intention of withdrawing its criticism.

In a letter to KCC's opposition Labour leader Cllr Mike Eddy, Commisson chairman Michael O'Higgins said: "We have been surprised by the reaction of KCC to our report as we consider it to be balanced, well-researched and on the whole positive about local authority treasury management and the framework within which it operates.

"We also consider that we were justified in describing the seven local authorities, including Kent, which placed money on deposit in Iceland in October 2008 as having acted negligently."

Asked to comment on the letter, the Audit Commission said: "We stand by our report and all of its findings."

KCC said it remained in dispute with the Audit Commission.

Cllr Nick Chard (Con), KCC cabinet member for finance, said: "We are still in disagreement with the Audit Commission. Our legal advice is that there are strong grounds upon which the Audit Commission's report can be challenged.

"We would prefer not to go down the legal route and are continuing efforts to work with the Audit Commission to find a resolution - but we have yet to receive a satisfactory response to our official complaint."

The council has maintained it is confident that it will eventually recover the money tied up with the banks.