Ministers are to go to court to try to stop The Independent from seeing secret correspondence which could shed light on how public money has been spent on the Royal Family.
The case follows a ruling by the Information Commissioner who last month ordered the Government to disclose more than 100 letters and memos concerning the escalating cost of the upkeep of the Queen's palaces.
Lawyers for the Department for Culture, Media and Sport (DCMS) have taken the case to the Information Tribunal to try to overturn the judgment, which could open up the Royal Family to scrutiny under the Freedom of Information Act (FOIA).
Royal aides have warned ministers that they do not want the correspondence with the Palace to be disclosed. But the Deputy Information Commissioner, Graham Smith, said the public interest in releasing the letters and other documents outweighed the Royal Family's right to protection under the FOIA.
He said: "[The Commissioner] believes that disclosure of the requested information would enhance public awareness and understanding of the funding and accommodation arrangements of the Royal Household and this would be in the public interest."
The Government had also claimed that publishing the documents would inhibit the free and frank exchange of views between ministers, and so prejudice the conduct of public affairs.
But again, the Commissioner said the exemption was overruled by the public interest and that disclosure would "increase transparency and accountability" in the awarding of grants to the Royal Household.
He said that by withholding the information, the DCMS had breached the terms of the FOIA, which Labour introduced in 2000.
MPs and campaigners have criticised the lack of transparency over the amount of public money given to the Royal Family, who spent £41.5m in 2009, £1.5m more than the previous year.
The documents are expected to shed light on the extent of the financial crisis at the Palace as the Queen tries to balance her books. A small number of the letters concern an application for a public subsidy of energy-saving measures, as well as money spent on security lighting and cameras. But the contents of the vast majority of the correspondence will not be known until it is handed over to The Independent.
Some of the information contains "free and frank commentary" on the decisions being taken by the DCMS. And the Commissioner said that while he recognised this correspondence was of a "candid" nature, it was in the public interest to understand how public money was spent and how the Government had responded to requests for funding from the Royal Household.
Gordon Brown has pledged to remove the Royal Family from any scrutiny under the FOIA. This stance has been criticised by the Information Commissioner, Christopher Graham, who told The Independent it would be "unfortunate" if the Prime Minister's proposal became law.
Under the new measure, mooted last year, the Royal Family would be granted full exemptions from the FOIA so requests for documents would no longer be subject to a public interest test.
Graham Smith, of the anti-monarchy group Republic, said: "The Government is making the extraordinary claim that the interests of the Windsor family are more important than those of the public. In a democracy, the public interest must trump all else."
A spokesman for the Information Commissioner said he would argue in favour of resisting the Government's appeal when it came before a tribunal. A panel of a judge and two other non-legal members, all appointed by the Lord Chancellor, will hear the appeal.
Palace officials admit they are still locked in a battle with Whitehall after the DCMS rejected a request for extra funds to repair the crumbling royal palaces, leaving the Queen in despair at her "patch and mend monarchy". The backlog in essential maintenance is estimated to be £40m, but staff have been given just £15m for the year.