Caerphilly Constituency Labour Party has backed Ron Davies over a leaked letter criticising Alun Michael's government on the issue of European grants.

Following a two hour meeting in Ystrad Mynach, party chairman Elwyn Morgan said the party supported Mr Davies and called on the Government to provide full matching funds for European grants.

The Caerphilly Constituency Party will submit a resolution to the Labour Party conference calling for �350m matching funds for the first two years of the Objective One programme.

The resolution says the money hould be over and above the Assembly's block grant.

The Labour council group leader Graham Court said the statement meant they supported everything Mr Davies said in his letter.

But he said they would not be supporting the Plaid Cymru camp to press the treasury for more money.

Mr Davies earlier told BBC Wales that he viewed the leaking of the letter with "great regret".

"This was a private and confidential letter and it is a matter of great regret that this was put into the public domain," he said.

"I did not want Plaid Cymru to take the initiative for what is a Labour achievement."

In the letter - which has been leaked to The Times newspaper - Ron Davies said: "There is a major political problem because of the inept way that the administration has handled the whole question of Objective One since May.

"There is no doubt that Plaid have taken the initiative and have gained a clear political advantage from Objective One status.

'Correct case'

"There is no doubt in my mind that the heart of their case is correct.

"The Treasury should allow Objective One monies to be additional to the Block and they should make further funds available as major funding.

"If they fail to do this the Labour Party in Wales will undoubtedly be vulnerable".

The Caerphilly MP and AM urged Labour councillors in Caerphilly to back a national campaign by Plaid Cymru president Dafydd Wigley.

The campaign aims to ensure the UK Government provides genuine match funding for Objective One, in addition to the money promised by the European Commission for west Wales and the Valleys.

Mr Davies told council members: "Either we defend the Treasury line (which is what Alun Michael is doing at the moment) and possibly pay a heavy political price or we put ourselves at the forefront of the campaign to get money from the Treasury.

"This latter course of action might be unpopular with our party colleagues in London.

"But I have no doubt in my own mind that this is the right course of action for us to follow, both morally and politically, here in Wales."

However, Assembly Economic Secretary Rhodri Morgan hit back warning that Plaid Cymru could undermine the economic benefits for Wales.

'Scare stories'

"Labour is leading the way in batting for Wales.

"Having secured Objective One status, it is Labour which will ensure that it is used to maximise benefit to bring economic prosperity and jobs to the poorest parts of Wales.

"It is the Assembly's Labour administration which is leading the negotiations for additional funding, and not Plaid Cymru."