Wandsworth Council has been condemned by Sandwell Council's leader Darren Cooper for treating people 'like cattle' and moving them around the country to cut costs.
And today it can be revealed there are 17 displaced families from London living in Sandwell.
There are also concerns it will further add to Sandwell's £1.6m black hole after a judge threw out a 'residency test' it was using to stop anyone who had not lived in the borough for two years from getting help with their council tax.
Wandsworth Council is spending £5 million buying properties for the homeless in less expensive areas of outer London.
It has now pumped another £1.25m of emergency cash into this and set up a second £5m fund for temporary accommodation inside and outside its borough.
It is sending people to 19 properties elsewhere including one family sent to West Bromwich and others to Birmingham, Kingston, Sutton, Reigate and Banstead, Merton, Croydon, Lambeth, Portsmouth, Leicester and High Wycombe.
Councillor Cooper said: "They are treating people like cattle. It is completely wrong. This vindicates what we were trying to do with our residency test. We have to be able to support the people who are already here. We can't have more being dumped from other areas when it is their own councils that should be supporting them."
West Bromwich East MP Tom Watson said: "The government says that their 'benefit cap' is driving down the social security security bill. It might be in rich London boroughs but the opposite is true in the West Midlands. They are driving out the poor from inner London and forcing them into boroughs like Sandwell."
Emma Reynolds, shadow housing minister and MP for Wolverhampton North East, said: "It's a tragedy that homeless families are being moved hundreds of miles from family and friends. As well as being hugely difficult for the families concerned, it also creates pressure on local services in Sandwell."
Wandsworth Council said it was spending 'significant extra sums' on providing homes for families who have become homeless through no fault of their own. Most of the new housing is in south-west London, but some properties are further afield because the council says it offers 'better value for money'.
Wandsworth Council spokesman Eyvind Ryans said: "We have helped just one homeless household move to a private sector rented home in West Bromwich. We don't own any properties in the area."