Construction costs for the Olympics currently stands at �5.3m

The Taxpayers' Alliance (TPA) said the extra demand for construction created by the Olympics will raise construction inflation by 1.25% per year until 2012.

This would lead to a rise in the cost of housing and public buildings.

But a Department for Culture, Media and Sport spokesman said the Olympics accounts for "a very small proportion" of building taking place in London.

'Knock-on effect'

Bulldozers started to clear the Olympic Park site in Stratford, east London, last month. Construction and regeneration costs for the 2012 Olympics are expected to total �5.3bn, the Olympic Delivery Authority said.

The extra demand for construction this represents will have knock-on effects in the wider construction industry, campaign group TPA said.

Construction consultants EC Harris estimated that the Olympics would increase annual construction inflation in London and the South East by 1.25%.

Annual construction orders in the area currently total �12.2bn, so this predicted rise would add an extra �3.9bn to construction prices by 2012.

The bigger the bill for the Olympics becomes, the more damaging this knock-on hidden cost will be Matthew Sinclair, TPA policy analyst

The TPA predicts this would add �1.5bn to the cost of private commercial buildings, new office and retail space, and �921m to the cost of building private housing - potentially adding to house price inflation.

A �640m increase in the cost of public buildings - which could affect plans to build new schools, NHS units and GP surgeries - was also predicted.

TPA policy analyst Matthew Sinclair said: "The bigger the bill for the Olympics becomes, the more damaging this knock-on hidden cost will be."

He added: "Increasing the cost of construction in London and the South East is not only hazardous to the health of the British economy but also imperils the objective of getting enough new homes built to make things easier for first-time buyers."

Any increase in construction inflation is likely to only be attributable in very small part to a 2012 knock-on effect Department for Culture, Media and Sport

The Department for Culture, Media and Sport spokesman said the Olympics was "a significant project" but that other "very substantial" construction work was taking place in London, including Heathrow airport's Terminal Five and Thameslink.

"Any increase in construction inflation is likely to only be attributable in very small part to a 2012 knock-on effect," he added.