Thanet District Council is facing further criticism over a secret deal with ferry operator TransEuropa amid claims councillors are trying to block an investigation into what went wrong.

The deal has left the authority with a £3.3million funding gap and the Labour council has now agreed a package of measures to cover the black hole - including a £1m cut to the housing benefits budget.

But it has failed to stem a series of claims and counter-claims over the saga - with one leading critic complaining that the deal, which allowed the company to defer port fees owed to the council, could have breached EU rules on subsidies.

Green councillor Ian Driver accused the main parties of closing ranks to stifle questions about a deal that both were implicated in. The arrangement was originally agreed by the former Conservative-run council in 2011 and continued under Labour.

Cllr Driver said his attempt to secure an independent review of what had gone awry was blocked by the council's scrutiny panel – a cross-party watchdog group.

The panel met this week, but rejected his call for an immediate investigation.

That prompted complaints from Mr Driver that the panel was guilty of a "travesty of democracy".

He said: "I am staggered that Labour and the Conservatives have joined forces to block any investigation. There has to be an inquiry. The council’s constitutional rules have been broken and it may well be that the council has broken EU rules on commercial subsidies."

But his criticism was rejected by the Conservative chairman of the scrutiny panel. Cllr Jo Gideon said the committee had not blocked an investigation, but had wanted to wait until the council cabinet had considered the way forward.

Cllr Gideon said an inquiry was on the cards, but councillors would not consider what form it would take until it met again in about six weeks.

She said: "The question is not whether we look at it but how we look at it. What we wanted to do was wait for a report to be presented to the cabinet. We take this very seriously and will be bringing it back to the committee. Clearly, there are aspects we need to look at."

But she said there was a case to be made for agreeing the deal. "Had we pulled the plug, it is likely that we would have faced criticism that we were to blame - it is not straightforward."

Meanwhile, in a statement council chief executive Dr Sue McGonigal defended the deal: "

Let's be clear, the council was forced to make a very tough decision. Had we acted earlier to recover the fees, there was a very real risk that the company would have folded, being unlikely to secure an investor.

"Without an operational ferry service at the port, the council would face a huge loss of income with no guarantee of finding a replacement service.

"The council does not enter into any financial agreement without careful and detailed consideration of the risk. Although we’ve identified that the full amount of the debt can be covered from within existing council budgets, we will be doing everything within our power to recover the full amount owed."