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Powys council leaders have defended lending £5m to an English local authority to help it pay for a business park and housing scheme.

Cheltenham Borough Council has borrowed nearly £40m from five other councils to fund the development near GCHQ, including £5m from Anglesey council.

Powys's Labour group leader Matthew Dorrance said the money should be spent on public services in mid Wales.

Cabinet member Aled Davies said the loan helps generate income for Powys.

Cheltenham council announced a deal in August to buy 45 hectares of land for a cyber business park and up to 3,000 homes, but did not say where the £37.5m was coming from.

The details have now been revealed following a Freedom of Information request by the Local Democracy Reporting Service (LDRS).

As well as loans from the two councils in Wales, Cheltenham also borrowed £15m from Middlesbrough Borough Council, £4m from Derby City Council and £10m from South Lanarkshire Council.

Mr Dorrance criticised the loan by Powys "at a time when austerity is decimating our public services".

He told the LDRS: "When the cabinet is underfunding our schools, shutting down youth centres, threatening libraries with closure and asking Powys residents to pay an extra 9.5% in council tax, loaning Cheltenham Borough Council £5m shows just how out of touch this Tory/Independent cabinet is."

Mr Davies, Conservative group leader and cabinet member for finance, said: "Powys operates a Treasury Management Policy, under a Chartered Institute of Public Finance code of practice, to manage the authority's finances.

"It ensures the council has sufficient liquidity to meet its cash flow and achieves the optimum performance of funds. Providing a short-term loan to generate income is part of the council's normal treasury management work."

Plaid Cymru group leader Elwyn Vaughan said he had also made inquiries about the loan, saying: "It seems it's a standard procedure between local authorities."

Meanwhile Anglesey's director of resources Marc Jones said: "The loan provided to Cheltenham will be repaid in the coming days - with interest - in accordance with the terms of the loan agreement."