We have no option but to oppose these plans

GMB union

It comes at the same time as renewed criticism of Labour's plans from backbench MPs.

The GMB's executive announced the decision to cut �250,000 immediately from its expected �650,000 donation to the party this year.

Similar cuts could be made in the following three years.

The union movement as a whole has been angered by the government's plans to have private sector finance and management involved in the running of schools and hospitals.

Privatisation fear

A spokesman for the union said: "A number of people were uncertain about whether we should campaign directly against the government on this issue, but it was clear from the prime minister's tone that he intends to push forward with public sector privatisation.

"We have no option but to oppose these plans."

A series of Labour MPs rose to their feet in the Commons on Tuesday to express their alarm over proposals to increase private sector involvement in running public services.

David Taylor said he was "dismayed and astonished" that Labour leaders had been "seduced" by big business into continuing "flawed" Tory policies.

Private Finance Initiatives (PFI) were truly "prohibitive in cost, flawed in concept and intolerable in consequence for taxpayers, citizens and workers," he argued.

"In the recent debate on public services we were told by the electorate: invest or lose.

"In yesterday's speech we were told by the prime minister: reform or bust.

"Today we should retort: public provision not privatisation is the way ahead," Mr Taylor argued.

Another Labour backbencher, Kelvin Hopkins, branded PFIs as "irrational nonsense".

Obsession?

And Diane Abbott attacked the government's "obsessively ideological approach".

That suggestion was rejected by Treasury Minister Paul Boateng, who said the government's approach was neither dogmatic nor ideological but based entirely on the need to provide quality services and value for money for taxpayers.

On Monday GMB boss John Edmonds attacked Mr Blair over a speech he made on the future of public services at the Royal Free hospital in north London.

Mr Edmonds said Mr Blair had used "warm words" until he had come to the "hard policy issues".

Mr Edmonds has been an outspoken critic of government plans

"We are not looking at backdoor privatisation but facing the prospect of ministers kicking down the front door and hurling privatisation onto the mat," he said.

The union will use the money it saves by cutting donations to Labour to fund campaigns to support public services.

On Tuesday the GMB is launching a �250,000 newspaper advertising campaign to oppose the introduction of private sector management into the public sector.

The blow to Labour follows the keynote speech by the prime minister on his plans for public service reform in which he said the unions and public servants could not expect to have a "veto" over Labour plans for modernisation.

The GMB executive also decided to review support for individual Labour constituency parties and MPs.

Unison vote

The decision to cut Labour funding follows a move in June by the UK's biggest union Unison, whose members voted to review financial links with Labour worth �1.3m a year.

Despite objecting to the motion, the public sector union's leadership is now required to carry out a widespread consultation and report back to the conference next year.

The vote reflected concern among Unison members about the Labour government's plans to increase the involvement of the private sector in public services.