Croydon's Conservative council was branded a "disgrace" by anti-smoking campaigners for deciding to move away from ethical investing to make more money for its pension fund.

The Tories' decision comes just four months after the former Labour administration said it had no intention of abandoning a 10-year-old ban on investing in tobacco companies, on moral and health grounds.

However, the council which wants to make Croydon a smoke-free borough said investing in tobacco companies was the best way to maximise part of its £500million pension fund investment portfolio.

The pensions sub-committee's decision, based on recommendations from advisers, has sparked outrage from both anti-smoking organisation Ash and the opposition Labour party, who said it was unethical.

Iain Willmore, an Ash spokesman, said: "It's disgraceful that a local authority, which should be committed to public health, should be considering investing in companies whose products kill more than 100,000 people each year.

"I'm sure David Cameron, who is keen to present the Conservative Party as caring about ordinary people and about health, would be as shocked as we are by this council's decision. We think they should reconsider."

Croydon Labour group spokesman, Councillor Raj Chandarana, said: "It is not only morally unwise on health grounds but also in terms of it just not delivering the goods. With the amount of people now suing tobacco companies it is financially unsound."

The council decided to exclude the council's pension fund from investing in tobacco companies 10 years ago. At the same time it also agreed to support an ethical investment portfolio But the ethical fund has not been performing as well as some expected and tobacco firms are seen by finance officers as a less "volatile" investment.

Joint deputy leader Councillor Dudley Mead said members of the council's pension sub-committee had a responsibility to get the best returns for the pension fund.

He added: "By avoiding tobacco stocks and supporting ethical investments it is clear that in the past the council has constrained the fund's potential to achieve best performance and has increased the possibility of more volatile performance.

"For the direct benefit of our staff and local taxpayers, financial performance should be the primary criteria for pension investments."