The Union Finance Ministry has replied that the State's demand is against the Fiscal Responsibility Act.
The ministry's last communication with Kerala was a letter sent on May 26. On the basis of this, Kerala officially holds that it could borrow only Rs 15,390 crore.
On May 27, Kerala's finance minister K N Balagopal said the Centre had slashed Kerala's open market borrowing for the 2023-24 fiscal by more than half.
CPM on Saturday said the central government reduced its borrowing limit to Rs 15,390 crore from Rs 32,500 crore.
The borrowing has been made at an interest rate of 7.83 per cent with a repayment tenure of 23 years.
If this Centre-State conflict persists, Kerala's fiscal position could turn precarious.
The loan availing limit of the Kerala Government would get reduced by a minimum of Rs 4,500 crore next year.
The state government borrowed Rs1,000 crore at 6.55% for 10 years and Rs500 crore at 5.44% for four years in the bond auction held by the RBI on Tuesday.