The London mayor, Ken Livingstone, yesterday accused the Post Office of "blackmail" after announcing that a deal allowing drivers to pay the £5 congestion charge at post offices had collapsed.

The news will increase fears of call centre meltdown when congestion charging begins in London on February 17.

At his weekly press conference yesterday Mr Livingstone accused the Post Office of "the worst sort of corporate greed".

He claimed that after protracted negotiations the company belatedly demanded £1m for processing the payments, quadrupling the original £250,000 deal.

"The Post Office thought they had us over a barrel; it was blackmail."

In November 3 million leaflets were sent out to London householders telling them they would be able both to register their vehicles and pay the charges at post office counters.

Sources close to the mayor said there was still time for the Post Office to reconsider, but he had fired a shot across the bows.

But in a statement the Post Office denied responsibility for collapse of the deal, calling the mayor's accusation "astonishing."

While insisting the Royal Mail group - currently losing £3.5m a week - was still ready, willing and able to carry out congestion transactions, it blamed the private contractor Capita for allegedly withdrawing a £1m guarantee to underwrite costs if the charge was quickly scrapped.

Mr Livingstone conceded the first day of congestion charging would be a problem, but added: "This congestion charge is not rushed or ill-informed."

Payment of the charge will now be made through the internet, a call centre, or in garages and shops.

Mr Livingstone yesterday admitted that when he had phoned the call centre it had taken a second attempt before he understood the call menu.