THE cost of the London Olympic Games in 2012 is set to rise by well over £1.5 billion, as ministers use the event to speed up their regeneration plans for east London.

Ministers will be asked to increase the budget to about £5 billion in the autumn after radical reappraisals of facilities, costs and the proposals for a lasting legacy in an area that contains four of the poorest boroughs in the country.

The Lea Valley, where the games are to be held, has been earmarked for a large share of the new homes needed in the South East. After the Games the 5,000 homes in the Olympic village will be occupied permanently and a further 35,000 built. The extra cost will arise from funding the infrastructure for what will be effectively a new city from now, rather than leaving most of it until after the Games.

The Times understands that the Cabinet sub-committee considering Games preparations has heard that the £190 million security budget for the Games may have to more than double.

Ministers, anxious to counter suggestions that extra spending on regeneration meant that other costs would soar, emphasised last night that firm discipline over spending was being exerted and that every project was being examined with a view to finding long-term occupiers of the facilities.

The Times has learnt that the Government is considering using the 17-day sporting festival as the catalyst for a much larger scale of regeneration than had been planned already.

Until now the cost of staging the Games has been put at £2.375 billion, with an additional £1 billion of government money for regeneration of the Lea Valley area. That will rise by at least another £1.5 billion and possibly £2 billion.

The Treasury is not involved in assessing costs but is watching with interest, expecting a revised budget for the Games to be presented to ministers later in the year. Ministers will try to persuade Gordon Brown of the need for more money, particularly as some of it will be matched by the private sector.

Tessa Jowell, the Culture Secretary, told The Times last night that the project, which started as an Olympic park, “could now lead to the regeneration of a large part of London”.

She said: “We are talking about 40,000 homes for 100,000 people and we hope 30,000 new jobs. We will have schools and medical facilities. Our whole approach has been discipline over costs, concentrating on the legacy the Games provides, and maximising the value of regeneration.”

Since the success of the bid exactly a year ago Ms Jowell has asked KPMG, the professional services group, to review costs. The delivery authority has also been scrutinising the budget, as will the private management partner for the Games when it is appointed in August.

The additional costs will be made public in the autumn after the Cabinet has made the decision on additional funding.