Dozens of hospitals face closure as a result of the biggest revolution in the way local health care is delivered since the National Health Service was created.

The plans, which will create outcry among communities where up to 60 local hospitals are at risk, focus on building so-called super-hospitals featuring a broader range of medical specialties.

But the proposals, to be made public later this month, have prompted a bitter Cabinet battle amid fears of a political backlash in areas where hospitals are shut.

Ministers have been warned that creating the 'super-hospitals', with freedom to borrow money independently, would result in them expanding quickly - poaching services and patients from neighbouring NHS centres and forcing them to close.

Between 50 and 60 hospitals are known to the Department of Health to be vulnerable because they do not offer the full services, such as intensive care, a cardiac unit, or 24-hour cover by anaesthetists. The list is based on a survey by the Royal College of Physicians that asked consultants which hospitals were 'isolated' because they lacked certain facilities.

The issue of hospital closure - the 'C-Word', as Health Secretary Alan Milburn privately calls it - has been off limits since Labour came to power in 1997, although a number of hospitals have merged into single trusts.

A row over it flared last night, however, ahead of publication of a Department of Health document on 'the reconfiguration' of hospitals, which will say patients are safer if they are treated in larger, specialist hospitals rather than in smaller local ones.

The plans centre on a controversial scheme to create foundation hospitals, which would become the best specialist NHS centres in the country. These would be given freedom from Whitehall control and attract extra funding to expand their services, see more patients and offer a wider range of treatments.

The Government will invite the best performing NHS trusts to bid later this year for foundation status. The first 10 are likely to be named next spring.

The plan has resulted in a rift between Chancellor Gordon Brown and Milburn. The Treasury last night unleashed a an attack against the Health Secretary, claiming the Chancellor had personally driven forward plans to free hospitals from centralised control and already planned to go further.

The implication is that Brown, not Milburn, is in the driving seat on reform follows weeks of angry arguments into which the Prime Minister has repeatedly been dragged.

Milburn, backed by a close coterie of Blairite Cabinet Ministers, wants foundation hospitals to be allowed to borrow money in the markets, rather than only from the state. Brown is refusing, insisting that the foundation hospitals could go bust as a result.

But officials have also been talking to experts, and a number of think-tanks, about how the hospitals would work, and what it would mean for the smaller neighbouring units. They are aware that if some hospitals are allowed to borrow and expand their work by offering patients shorter waiting times and a wider range of treatments, local ones could be destabilised and face financial ruin.

A similar scheme in Australia has resulted in the Canberra government having to bail out some hospitals because the larger ones poached both staff and patients.

Reasons for change are hard for Labour to ignore, however. The Government's pledge to give patients who have waited for more than six months a choice of where they want to go for quicker surgery will result in more people going to the bigger teaching hospitals. Shorter junior doctors' hours and fixed payment rates for operations, will put pressure on the smaller hospitals.

A source told The Observer that the 'reconfiguring hospitals' document, to be published shortly, will be 'just Act One of the story. There is a much longer-term agenda over persuading the public that it is better for them to travel a bit further for treatment at a safer, properly equipped hospital.'

But Labour backbenchers are still bruised from losing the party's Wyre Forest seat at the last election to Dr Richard Taylor, an independent who won enormous support for a campaign against the closure of of the local Kidderminster Hospital.

One Labour MP said: 'We cannot have Kidderminster played out all over the country. We have not yet managed to convince the public that the loss of local services can be justified by building larger hospitals elsewhere.'