With its white stucco walls and expensive sports cars parked outside, it could be the villa of a successful City lawyer. It is located on a street in London’s richest borough, where neighbours include executives, bankers, models and film directors.

With its five bedrooms, two bathrooms, a double living room and a roof terrace, the value of the property – upwards of £2m – comes as no surprise, nor the rent of £1,755 a week.

Its occupants, however, are anything but wealthy, for the property is home to a family of council tenants who were rehoused there in late September. They have remained there, at taxpayers’ expense, ever since.

They are there with the approval of both the local authority and the government. The property was picked out by the Royal Borough of Kensington and Chelsea, while the housing benefit payout was authorised by the Department for Work and Pensions (DWP).

Neither, apparently, is to blame. The council says onerous government legislation is at fault for forcing it to rehouse homeless council tenants within the borough. The DWP points the finger firmly at the council for failing to look hard enough for alternative properties.

Between them, however, they are presiding over a perverse benefits system that rewards the unemployed with the kind of properties that most taxpayers can only dream about.

It is far from an isolated case. In Kensington and Chelsea alone there is an even more expensive property costing taxpayers £1,875 a week.

Responses to freedom of information requests reveal that there are five local authorities paying weekly rent rates equivalent to £50,000 a year or more. They are predominantly London boroughs, but also include other areas such as Exeter and Slough.

Matthew Elliott, chief executive of the TaxPayers’ Alliance, said: “This is a prime example of how seriously and urgently the system needs reforming.

“The council must work harder to find affordable accommodation and do more to stop greedy landlords from exploiting taxpayers’ generosity.

“At a time when many ordinary people are struggling to make their own mortgage payments and face repossession, it is wrong that local authorities are funding five-star mansions for those living on state benefits.”

The Kensington townhouse was purchased for £1.3m in 2004 by a gynaecologist at a private hospital in central London. Estate agents believe it is now worth between £2m and £2.6m. One said: “This is an extremely desirable area, the family is very lucky. When we get a property on this street it usually goes just like that.”

The house was on the market for £1,755 a week until September 16 when Foxtons, the estate agency, managed to find tenants for the council. They moved in shortly afterwards.

When approached by The Sunday Times, the tenant refused to comment, instead shouting: “It’s none of your business. I’m going to call the police.”

In a subsequent e-mail she said she had reported the journalist to the police for harassment.

She wrote: “I am making you fully aware that any harm from this mans [sic] contact or any information that would instigate harrassment [sic] from others, or harm my well being [sic], i.e my address, personal circumstances, unauthorised photos etc will be vigorously persued [sic] by myself.

“You do not have my permission to write anything about me, and whether ‘who pays my rent’ is news worthy or not (in the light of harm it causes) is a very interesting topic that could be analyized [sic] in court if you wish.”

The landlord also refused to comment but Foxtons confirmed that it was managing the property which was one of a number rented through the council’s scheme for the homeless known as Letstart.

Councillor Thomas Fairhead, cabinet member for property and finance at Kensington and Chelsea, insisted that the council’s hands were tied by the government.

“Councils do not have discretion in how they administer the housing benefit system. We must follow the government’s rules,” he said.

“That means that among other things we cannot redirect claimants to cheaper parts of the capital or the country, even though we have some of the most expensive property prices in the world.”

Cheaper accommodation is readily available at present, with a cursory search showing a similar five-bedroom property within the borough three miles away, available for £875 a week, half the price.

In April ministers introduced the local housing allowance to try to encourage private landlords to take in the homeless because of a shortage of council housing.

Under the scheme, landlords are told the maximum that a council is prepared to pay for any property even before negotiations begin, allowing them to extract the highest possible level of rent from the taxpayer.

The problem is compounded by soaring rents in London boroughs such as Kensington and Chelsea, where the maximum housing benefit authorised by the government is £370 a week for a one-bedroom flat, £540 for a two-bed flat, £795 for a three-bed, £1,150 for a fourbed and £1,950 for a five-bed property.

In October James Purnell, the pensions secretary, had pledged to cap housing benefits for properties with more than five rooms. But the reform would still enable families in Kensington and Chelsea to claim nearly £2,000 a week for five-bedroom properties.

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