Taxpayers money should be spent on buying the Queen a new royal yacht to commemorate her diamond jubilee, Michael Gove has said.

In a letter to cabinet colleagues obtained by the Guardian, the education secretary warned the celebration of the Queen's 60th year on the throne was in danger of being "overshadowed" by the London Olympics and suggested the government purchase her a new boat, at an estimated cost of £60m.

"I feel strongly that the diamond jubilee gives us a tremendous opportunity to recognise in a very fitting way the Queen's highly significant contribution to the life of the nation and the Commonwealth," he wrote.

"Events such as proms and the party at the palace organised for the diamond jubilee, and street parties, although excellent, are transient. It would be appropriate to do something that will mark the significance of this occasion with fitting ceremony."

However the suggestion was rejected by deputy prime minister Nick Clegg, who said while the jubilee would be a "wonderful occasion" he did not think buying a boat for the royals would be at the "top of the list of priorities for the use of public money".

Gove said the royals should be granted a new yacht "in spite, and perhaps because of the austere times" as a way of lifting the nation's spirits.

"My suggestion would be a gift from the nation to her majesty; thinking about David Willetts's excellent suggestion of a royal yacht, and something tangible to commemorate this momentous occasion."

He added: "The diamond jubilee must not be overshadowed by the Olympic Games, but form an integral part of this great year for our country."

The royal yacht Britannia, which served the Queen for 44 years, was decommissioned by the Labour in 1997.

Labour Party deputy chairman Tom Watson said Gove was "out of touch" at a time of spending cuts. "We're all looking forward to the diamond jubilee. The significance of the occasion should be celebrated across the country," he said.

"When school budgets are being slashed, parents will be wondering how Gove came even to suggest this idea. This is not the time to spend £60 million on a yacht."

The subject of the yacht was raised in the Commons last year when MPs debated the budget for the Monarchy. Tory MP and staunch royalist Jacob Rees-Mogg asked: "Is there any chance that for the diamond jubilee we will get the yacht back?"

While Edward Leigh, the former chairman of the public accounts committee that scrutinises public spending said "stingy" Labour's decision to scrap the Britannia was a "tragedy".