George Osborne's plans to hand shares in the Royal Bank of Scotland to the public will mean the deficit swells by billions of pounds, Ed Balls has claimed.
The Shadow Chancellor warned against a "desperate" pre-election fire-sale which he said would be putting "politics before economics."
In an interview with The Times (£), Balls said the current share price would mean a loss on RBS, which is 81% owned by the public.
Campaigners backed his comments.
A spokesman for moveyourmoney.org.uk, which is pressing for banking reform, told The Huffington Post UK: "A fire-sale in advance of the next General Election is going to result in further losses for the taxpayer.
"It would be hard not to view it as election spin."
Many campaigners want RBS to be broken up into a network of smaller regional banks.
Osborne is set to announce his plans for the bank next month.
Balls told The Times: “A giveaway or a loss-making firesale at the current share price would add billions to the national debt at a time when poor economic growth already means borrowing isn’t coming down.
“It’s no wonder Treasury officials are alarmed at the idea because George Osborne is playing a dangerous game here. If he once again puts politics before economics he risks leaving a huge hole in the public finances.”
He also refused to comment on whether the last Labour Chancellor, Alistair Darling, had paid too much for the stakes in RBS.
“It would be foolish and improper for me to run a running commentary then or now. I wasn’t in the Treasury at the time,” he said.