Southwark's cabinet last month approved a plan to spend tens of millions of pounds provided by developers of prime riverside sites in SE1 to build new council housing across the borough.
Although the move represents a break with established policy which required social and affordable housing to be built together with homes for private sale, the council's Labour leadership argues that its approach will ensure that more homes are built overall.
The council has accepted in-lieu payments of £44.5 million for affordable housing from developers at One Tower Bridge, King's Reach, Neo Bankside and Union Street which will be pooled with funds from other sources to create an affordable housing fund.
In his foreword to last month's cabinet report, council leader Peter John explained that "by using the regeneration that is taking place in our borough, by 2020 we will build 1,000 new council homes in Southwark – more than have been built across the whole of London in the last ten years.
"1,000 new homes will certainly not solve the housing supply challenge that faces our borough – to truly do that requires action outside our control – but we will be working towards making the future for our borough's homeless and overcrowded families a fairer one."
The first site to be identified for the building of new council homes is in Long Lane but it seems likely that few of the other sites for the rest of the 1,000 homes will be in SE1.
Councillors in the north of the borough fear that with house prices in some of the new developments starting at £1 million, the move to build affordable homes at arms-length from the parent schemes spells the end for genuinely mixed communities in riverside neighbourhoods.
"This is another example of Labour overruling local democracy," said Cllr Adele Morris, who represents Cathedrals ward for the Lib Dems.
"The planning policy documents which require on-site affordable housing were drawn up as a result of widespread consultation, and were designed to ensure that we retained mixed communities with a range of housing options.
"This administration is too quick to bypass these policies and take the cash to spend elsewhere in the borough.
"The cabinet report talks about a 'local lettings' policy but there won't be any local council properties in Cathedrals ward as the new ones will be built elsewhere and the old ones are being sold off instead of refurbished.
"We have had a high percentage of social housing in Cathedrals ward for generations and I can see no reason why the children of long established families with strong links in this community should be forced to live elsewhere."
The debate about affordable housing and mixed communities was reignited on Monday with a the publication of a report from Conservative think tank Policy Exchange calling for the sale of council housing in areas with high property values in order to fund a larger number of homes in less expensive areas.
"Expensive social housing is costly, unpopular and unfair," said Alex Morton, author of the report.
"That is why almost everybody rejects it. Social housing tenants deserve a roof over their heads, but not one better than most people can afford, particularly as expensive social housing means less social housing and so longer waiting lists for most people in need."
Peter John seemed to give his tacit backing to the think tank's report when he tweeted: "Policy Exchange proposal on social housing is a variation on work we are doing in Southwark with affordable housing fund".
Bermondsey and Old Southwark Lib Dem MP Simon Hughes, speaking exclusively to the SE1 website, has spoken out against the ideas set out in the report.
"Policy Exchange's proposals would lead to the gradual removal of social housing from central London," he said.
"The impact that this will have on our communities and culture will make us all poorer regardless of background.
"Liberal Democrats in Southwark have long held objections to similar policies pursued locally by Labour and so I am not surprised that the Labour leader is openly endorsing this idea from a Tory think tank.
"The reality is that for young people in communities like ours the amount of cash needed upfront to buy a new home is so large that only people who come from already wealthy families can afford one.
"Social housing provides an alternative form of tenure for those who do not come from a wealthy background but who make an equally important contribution to our communities.
"That is why together with Liberal Democrat councillors in Southwark I will continue to fight for more social housing in the north of our borough."
Responding to the MP's intervention, Labour's Cllr John highlighted the "desparate" situation faced by many in central London including the 20,000 people on Southwark's waiting list.
"As such it's absolutely vital that we make the best use of our resources to increase the supply of council homes we have for people in need, whilst keeping our commitment to mixed communities," said the council leader.
"That's why we will build 1,000 new council homes by 2020, whilst retaining our commitment to mixed communities by, for example, securing a guaranteed minimum of 25 per cent affordable homes in the Heygate Estate regeneration.
"The coalition Government's 60 per cent cut to funding for new social housing has meant that we have to be imaginative as a council or leave people in unfit, overcrowded conditions or homeless.
"We can either wait like a modern day Mr Micawber for something to turn up, moan from the sidelines about the disastrous decisions that the Tories and Lib Dems in Government are taking – or act to get the best for Southwark residents; Labour is doing the latter."
• Southwark's cabinet is due to consider a further report on the affordable housing fund next month