The Conservative Newark MP and housing minister Robert Jenrick acted unlawfully over a billion-pound property deal, the High Court has heard.
Mr Jenrick signed off planning permission for the Westferry Printworks housing development on the Isle of Dogs, which was set to be up to 46 storeys high.
However the Government has now conceded this was unlawful, and that the timing of the decision: "would lead the fair-minded and informed observer to conclude there was a real possibility (Robert Jenrick) was biased."
The plans were signed off by Mr Jenrick one day before the council was due to change how it calculated infrastructure charges, which would have meant developers had to pay between £30 and £50 million more, the council says.
In January, plans to build 1,524 homes on the site near the River Thames were approved by Mr Jenrick despite a planning inspector recommending against granting permission.
In March, the Labour-run Tower Hamlets council initiated legal action against the Secretary of State.
A statement from the council said: “Faced with the prospect of having to release documentation relating to the decision, the secretary of state chose to allow the planning permission to be quashed.”
The development was put forward by Richard Desmond, the former owner of the Daily Express and Daily Star newspapers, and the housing development had been planned for the site of his print works.
Mayor of Tower Hamlets John Biggs said: “We may never know what emails and memos the secretary of state received before making his decision and what influence they had, but his reluctance to disclose them speaks volumes.
“In siding with the developer, he went against not only the planning inspector but also the council’s Strategic Development Committee and the residents whose lives would be directly impacted by this scheme.”
Tower Hamlets Labour councillor Rachel Blake, the Cabinet Member for Planning, said: “We were shocked that in taking his decision, the secretary of state went against the government’s own planning inspector’s recommendation.
“The timing, which meant the developer would have been able to pay significantly lower infrastructure costs than if it had been made the following week, meant we had no choice but to challenge it through the courts.
“We feel strongly that these decisions should be taken locally but where they’re not, our residents must still be able to trust the integrity of the processes that are followed.”
A spokesman for Mr Jenrick’s department - the Ministry for Housing, Communities and Local Government - said: “While we reject the suggestion that there was any actual bias in the decision, we have agreed that the application will be redetermined."
