Eurosceptic Tory MPs furious at David Cameron's decision to spend £9.3m ($13.1m) of taxpayers' money on pro-EU leaflets have threatened to "grind the government to a halt". The Conservative Party is facing the prospect of an unprecedented rift after the prime minister was warned by angry politicians that they would block government legislation in parliament.

The Tories have been deeply divided over Britain's membership of the EU and Cameron's latest move appears to have pushed the party's Eurosceptics to the edge. "There is a huge amount of anger about this. So much so that there are discussions about organised rebellions to grind government to a halt," said one MP, according to the Telegraph.

The current government has a majority of 12, the smallest since October 1974, meaning that it is vulnerable to just a handful of MPs flouting the party stance. Even if the prime minister is successful in his efforts to keep Britain in a reformed EU in the 23 June referendum, Cameron could still face a leadership challenge.

Cabinet ministers backing the Leave campaign said they were not aware of the decision to send out the leaflet which will be delivered to all 27m homes in the UK, insisting that it was signed off by a committee of pro-EU ministers. Despite the criticism, Cameron said that the government was "not neutral" in the referendum debate defended the cost of the 16-page booklet, saying it was "money well spent".

But Eurosceptic MPs have dismissed the leaflet as foul play. Justice Secretary Michael Gove said: "I want a fair campaign, I want people to hear from both sides but what I think is wrong is spending £9m of taxpayers' money on one particular piece of one-sided propaganda. I think it is wrong that money that should be spent on priorities like the NHS is being spent on Euro-propaganda."

London Mayor Boris Johnson slammed the "crazy" decision to spend money on the literature, which is "basically intended to scare people and to stampede people in one direction."

Leave campaigners have attacked the cost of the promotional measure, saying it costs more than the £7m ($9.8m) that each side is allowed to spend once the official campaign period kicks off next week. "I would have thought one of the very reasons for the establishment of an Electoral Commission was that the ground rules in this referendum were supposed to be free and fair," said UKIP leader Nigel Farage.

Former defence secretary Liam Fox accused Cameron of exploiting a loophole to gain an unfair advantage. "It's a question of fairness," he said on BBC Radio 4. "The government knows that it wouldn't be allowed to put this leaflet out during the last four weeks of the campaign and is taking advantage of that loophole."

"What the Government are effectively doing is doubling the funding for one side, ie the Remain campaign, by spending this amount of money," Fox added.

Despite coming under intense scrutiny, a defiant Cameron rejected the notion that the campaign is "undemocratic". Speaking at Exeter University on 7 April, the prime minister said: "I make no apology for the fact that we are sending to every household in this country this leaflet, which sets out what the government's view is and why we come to that view."

He added: "We're not neutral in this. We think it would be a bad decision to leave – for the economy, jobs, investment, family finances and universities."