Police chiefs ordered binmen to act as spies by sifting through rubbish to look for pamphlets produced by Islamic terror groups.
Town halls responsible for areas with large Muslim populations were summoned to London and told to get their refuse collectors to search bins for discarded documents or material that might identify and incriminate Islamic extremists.
The Mail on Sunday understands that the instruction was issued at a secretive summit hosted by the Department for Communities and Local Government (DCLG), attended by Ministers and Andy Hayman, who at the time was Britain's top anti-terror policeman and an Assistant Commissioner of the Metropolitan Police.
The meeting was designed to encourage the chief executives of 17 local authorities – including Manchester, Oldham, Leicester, Bradford and four London boroughs – to get their employees to play a greater role in addressing extremism and the terror threat.
They were told that the meeting, held at the Victoria Park Plaza Hotel in Central London, and its deliberations were to remain strictly confidential.
But the bin-searching instruction was deemed so potentially damaging to community relations that councils simply refused to carry out any sort of spying.
Police chief Andy Hayman hosted the secret summit with council officials
Bradford City Council leader Kris Hopkins said: "We were asked to snoop on our own residents by getting our binmen to rummage around people's rubbish.
"But the idea that our binmen should be rooting around a wheelie bin to see if they can spot dodgy bits of paper or funny wires is ridiculous.
"Our binmen aren't there to act like the secret police. They're there to empty our bins.
"It goes without saying that if any of our staff spotted something illegal they'd call the police.
"But our job is to bring communities together, to help our communities live side by side, not do the dirty work for MI5."
Robert Light, the leader of Kirklees Council in West Yorkshire, added: "I, and others, refused to do anything like this."
The DCLG stressed that the instruction had come from the police and attempted to distance the measure from Ministers, particularly Cabinet Minister Ruth Kelly, who was in charge of the department when the meeting took place.
A spokesman said: "It was the police. It did not come from Ruth Kelly or any of her officials. It is not policy."
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