LONDON, Dec 1 (Reuters) - The UK Municipal Bonds Agency, which raises funds in debt markets for local authorities, has cancelled a bond issue intended to raise funds for Warrington Council in northwest England, an official told Reuters.

The eight-year sterling bond sale was withdrawn after investors raised concerns about changes to how the UK Debt Management Office's Public Works Loans Board (PWLB) lends money to local authorities, said Christian Wall, a director at PFM, speaking on behalf of the agency. PFM is the managed service provider to the UK Municipal Bonds Agency.

"Investors were concerned that local authorities that use PWLB would not be able to access it in the future. The way some recent changes were announced or not announced has caused a lot of people to speculate who is eligible or not eligible," he said.

In changes pushed by UK finance minister Rishi Sunak, the way in which local authorities are funded was altered last week, with the PWLB cutting the rate of its lending facility by 100 basis points but increasing the checks it performs on councils seeking funds.

A government document https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/940281/Response_to_consultation_Public_Works_Loan_Board_future_lending_terms_1.pdf said some councils had been using the PWLB lending facility to buy investment property to generate yield, which is "not an appropriate use of PWLB loans."

The UK Municipal Bonds Agency was created to provide local councils with much-needed funding, but only this year made its bond market debut after six years of delays and false starts.

Deutsche Bank, HSBC and Santander were bookrunners on Tuesday's cancelled deal. (Reporting by Abhinav Ramnarayan; Editing by Tommy Wilkes and Mark Potter)