Michael Gove has been accused of making “quasi-Marxist” demands after housing developers were told they could be shut out of the property market unless they paid into a new building safety fund.

In a letter that triggered a backlash from the industry, the Department for Levelling Up, Housing and Communities said only firms that paid for work to fix unsafe apartment blocks would continue to “enjoy the benefits” of state services including the planning system and building safety inspections.

It said those who refused would be barred, adding: “The Secretary of State has made clear he is willing to explore taking further steps to ensure the only participants in this market are those who have committed to resolving this crisis.”

Enclosed was a draft agreement, described as legally-binding, which proposed that firms make annual payments decided by the department, partly calculated using their “historical profits”.

The letter was published on Thursday night as Westminster was being rocked by high-level resignations from Boris Johnson’s team in Downing Street.

It comes after Mr Gove vowed leaseholders living in apartment blocks would pay nothing towards work to fix safety issues identified in a string of buildings following the Grenfell Tower fire.

His proposals have been widely welcomed by leaseholders who have faced six-figure costs for remedial work, fire watches and rocketing insurance premiums passed on to them by building owners.

However, the threat to cut off developers from state services was denounced by industry figures as disproportionate and an “attack on business”. Some questioned whether they were lawful.

One industry source said: “Michael Gove basically appears to be saying, ‘if you are a UK housebuilder, you will not be able to operate your business in this country unless you agree to put whatever amount I say into this fund, every year, for as long as I say’. This is not something any company could agree to. It’s insane.”

Another person added: “The proposals are quasi-Marxist. If a chief executive signed up to this, they would be sacked instantly. There cannot be any legal basis for these kinds of threats in a democratic society.”

The Home Builders Federation, which officially represents the industry, accused the Government of failing to negotiate constructively and said it was now seeking legal advice.

The trady body also took aim at the Government for “the failings of its building regulations regime on which the industry has relied”.