Baroness Uddin, Britain's first female Muslim peer, faces a possible police investigation for fraud over allegations she claimed the money by saying the flat was her 'main home'.
Five neighbours have said that bedrooms in the property in Maidstone, Kent, were unfurnished and they had never seen anyone living there since it was bought in 2005.
The Baroness's main home, where she is registered to vote and where she has been registered as a company director, is a housing association property, the Evening Standard reported today.
Peter Golds, Tory opposition leader in Tower Hamlets where the baroness lives, said: 'This borough has some of the most desperate housing need in Britain.
'I think the 20,000 people on the council's waiting list would be interested to know what a prosperous Labour peer who can afford a property in Kent is doing in social housing.'
The three-bedroom house, built in the early 1990s, is in Wapping. A plaque on the side of a neighbouring property says it and Lady Uddin's house belong to Spitalfields Housing Assocation.
The association received a public subsidy of £37.8million last year and charges £104 rent a week on an average property.
Despite her allowances from the Lords, Baroness Uddin, 49, is comfortably above the income bracket to qualify for social housing.
She has held several directorships at major companies, including former ITV producer Carlton Television, and was a senior employee and parliamentary consultant for the Excelcare nursing home group.
Currently she holds two jobs, one at the Home Office and the other with the philanthropic wing of insurance giant Zurich.
Lady Uddin, who claimed £29,675 for accommodation last year, lives in social housing in Wapping, above
Because Lady Uddin claims her main residence is outside London, she is entitled to collect up to £174 in accommodation costs for every day she attends the House of Lords.
The amount is paid to peers without the need to produce receipts and many claim the maximum every day they attend.
Baroness Uddin claimed £29,675 for accommodation in 2007/8, a claim of 179 days at the maximum daily rate of £165 a day - more days than the Lords actually sat that year.
It is unknown how much she pays in rent on her Wapping property.
Mr Golds added: 'Whatever rent Lady Uddin pays, she is depriving a low-income family of a home which was built for the needy at public expense.
'She has a great deal of explaining to do.'
Baroness Uddin was today unavailable for comment.
On Friday, she issued a statement through solicitors saying: 'The Wapping house is rented, while I own the property in Maidstone.
'I do not believe that I have done anything wrong or breached any House of Lords rules.
'Should the relevant House of Lords authorities wish to investigate the matter I will, of course, co-operate fully.'
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