The two councils plan to jointly run many frontline services

The decision comes after a review of the 2007/08 financial settlement, which authorities had claimed was too tight.

The finance minister said all councils may now be offered extra cash in return for making efficiency savings.

Stirling and Clackmannanshire have said plans to merge services such as social work and education could save �4m.

Finance Minister Tom McCabe said he had been in discussions with local authority chiefs in recent months over what the executive would get in return for any increase to the �8.5bn announced in December 2004.

Reducing management

"I said it three years ago at the Cosla convention that I'm less concerned about the number of provost's chains you have got but I'm very concerned about the numbers of directors of finance and the numbers of chief executives," he said.

"I think that kind of sums it up for me. There are not many politicians who go on the doorstep to face a demand that we must have our own HR department in this town.

"But a lot of people at their local gala or through local organisations like to see the provost or the civic representative for their area."

He said the way forward was the rationalisation of management structures as opposed to changing geographical boundaries.