Fourteen thousand new homes could be built on the edge of Oxford after the city and Didcot put themselves forward for a share of a special Government housing fund.

Last night, Local Government Secretary Ruth Kelly named seven towns and cities in the South East which want to become 'sustainable growth areas'. Oxford and Didcot are vying for a share of £40m towards housing infrastructure. The winners will be named in October.

The fact the city council wants a large development on the outskirts is no surprise, but it is bigger than previously thought.

In the bid, council chief executive Caroline Bull said the Green Belt boundary around Oxford had become a "constraint, holding back the city's potential".

The document added: "It is already known there are two principal and most likely locations - an area to the south of the city at a location, known as south of Grenoble Road, and an area to the north of the city, at a location known as between Kidlington, Yarnton and Begbroke."

But Ann Ducker, the leader of South Oxfordshire District Council, said: "I'm appalled by both the proposal put forward by Oxford City Council and the fact Ruth Kelly has included it in her list of potential growth points. The impact of 14,000 houses in the Green Belt simply doesn't bear thinking about."

Hours before it became known the city council had made its bid, it was revealed Oxfordshire could be forced to find room for an extra 18,210 homes between 2011 and 2026, over and above those already proposed.

And that would mean squeezing in a development the size of Kidlington - in addition to the 47,200 homes that have to be built by 2026.

The South East England Regional Assembly had already agreed 1,700 houses should be built each year until 2026 as part of the South East Plan.

But a report published by the Government suggested as many as 2,914 houses could be built in central Oxfordshire every year - an increase of 1,214 a year. It has five different levels of housing to decide upon.

Andy Boddington, the Oxfordshire spokesman for the Campaign to Protect Rural England, said: "If the highest figures in this report are adopted, one in two houses will have to be built on green fields, gobbling up Oxfordshire's green and tranquil countryside.

"The danger of the Government's projections is that they will become a self-fulfilling prophecy."