A Government minister has stoked up the row over First's axing of a rural bus route by claiming there is nothing to stop the operator from propping it up with its own funds.

In a Parliamentary debate yesterday Northavon MP Steve Webb said the company had written to him stating the vital X27 rural route was not viable and could not be subsidised from profits on popular journeys.

But transport minister Paul Clark insisted there was nothing to stop the firm digging into its profits from other routes to cover costs on the unprofitable service between Yate and Bristol, which also serves Iron Acton and Winterbourne.

Mr Clark told MPs: "As far as I am aware it is not the case that companies cannot cross- subsidise between routes."

Last night First stood by its own legal advice that it could not divert money made on other Bristol routes to support the X27 and said it would raise the issue with the Government itself.

The transport giant, which made a £60-million operating profit in its bus division in a six-month period last year, gave just eight weeks' notice – the minimum legal requirement – that it was withdrawing the X27 service and did not consult locally.

South Gloucestershire Council has agreed to subsidise the service but only on an hourly basis, Monday to Saturday, for six months. Mr Webb, who secured the debate on local bus services in parliament's Westminster Hall, told MPs that First was treating customers with contempt and had taken their performance to a "new level".

Axing the route was "literally going to kill communities", he added.

The Lib Dem MP insisted the time for giving the company the chance to prove it had an interest in public service was over and instead everyone should face up to the fact that First was "in it for what they can get and we should not pretend otherwise".

Mr Clark insisted that councils would get tough new powers to crack down on bus companies by the end of the year when the Local Transport Act comes in to effect.

It would allow the former Avon authorities to work together to create a network of routes and timetables across the region which firms would then have to bid for.

That would stop bus operators picking off the best routes while leaving residents in rural areas without services. It would also give councils the power to cap high fares – another area First comes under repeated criticism for.

Mr Webb warned First "the clock was ticking" adding: "At the end of the year there will be new powers. If the councils get their acts together they can say these are the services we want and the bus companies will have to provide those."

Responding to the Mr Clark's statement in the debate, First spokeswoman Karen Baxter said: "We will talk to the Department for Transport to raise this specific case and to discuss the issue more generally with them, as our understanding of competition law is that we cannot cross- subsidise services."