The council has come under fire for refusing to turn its back on profitable ties with the tobacco industry despite taking on new public health responsibilities this week.

Anti-smoking campaigners, a cancer charity and opposition councillors condemned "an appalling conflict of interest" which sees the council committed to helping residents quit smoking while holding millions of pounds of investments in cigarette companies.

Croydon Council currently has £2.1m invested in the industry, making up 0.34 per cent of its pensions fund.

But on April 1 it took over the reins of some public health services, including helping smokers to tackle the habit, from the NHS.

It means the council will spend £900,000 a year on counselling, nicotine replacement therapies, carbon monoxide blood-level monitoring and campaigns - while at the same time banking on the success of tobacco firms to help pay for staff pensions.

The most recent figures available show between 2008 and 2010 more than 550 people died in the borough due to health issues attributed to smoking.

Treating smoking-related illnesses in hospital costs each Croydon resident £36.30 a year, according to Government estimates.

Councillor Tony Newman, leader of the council's Labour opposition group: "They must surely stop this investment now. It is an appalling conflict of interest.

"The main authority charged with helping to reduce smoking is on the other trading in something through which thousands of people lose their lives.

"I think the overwhelming majority of taxpayers in Croydon would be horrified to know what is happening with their money."

Croydon: "Absolutely not" dropping tobacco investments

Amanda Sandford, research manager at campaign group Action on Smoking and Health, said the shift in public health duties had created "a clear conflict of interest".

She said: "There is no obligation for councils to invest in tobacco.

"Croydon Council should join the growing band of other local authorities that have pledged to disinvest in tobacco and to place their pension funds in more ethical businesses."

But Coun Dudley Mead, who chairs the council's pensions committee, insisted it would "absolutely not" be changing policy towards tobacco shares and said it was naive to prioritise "ethical" stock.

He said: "My duty is to get the best possible return for the investments we make.

"The reality is that in the last 15 years, tobacco companies have been the best performing investments in the whole of the London Stock Exchange by a considerable distance."

He added: "Where does ethical investment stop? Why does everybody talk about tobacco companies and not the supermarkets that sell tobacco?"

Coun Margaret Mead, cabinet member for health, also dismissed concerns of a conflict between the council's health duties and its investments.

She said: "I think they are separate questions. It is an individual choice whether you smoke or not and trying to make sure there are sufficient pension funds is looking after people's best interests."

Coun Simon Hall, who also sits on the pensions committee, said Conservative councillors had "refused to even discuss" relinquishing links to the tobacco industry.

A spokeswoman for Croydon Council said: "The pension committee reviews the entire fund’s investments on a quarterly basis. Stock selection is delegated to the fund’s investment managers."