DAVID Mundell has accused John Swinney of making "ludicrous" demands in talks over bringing new powers to the Scottish Parliament.

The Scottish Secretary claimed the Finance Secretary was "chancing his arm" by seeking a deal that would protect Scotland's budget entirely if, as predicted, the country's population grows more slowly than England's

In a robust defence of the UK Government's position, he insisted the risks posed the Scotland's budget amounted to a "molehill" set next to the "mountain of powers" the Bill would devolve to Holyrood.

Mr Mundell said he was confident a deal could be struck in time for MSPs to approve the legislation before Holyrood shuts down on March 23 for the election campaign.

However, his language betrayed the gulf that remains between the two sides.

It followed days of  increasingly combative rhetoric from the Scottish Government, which has warned Treasury  proposals would shrink Scotland's budget by billions of pounds within a decade.

In one  concession, First Minister Nicola Sturgeon indicated talks could continue beyond her February 12 deadline.

Her spokesman said the Scottish Government was "working towards" the date but refused to rule out negotiating for longer in a bid to reach a deal.

The two governments are at loggerheads over how to reduce Scotland's annual block grant when Holyrood assumes control over income tax - worth approximately £11billion per year - and other levies.

Mr Swinney is pressing for a mechanism known as "per capita indexation," which would protect Scotland's budget against demographic factors he says the Scottish Government would be powerless to influence.

But Mr Mundell said: "If there is tax growth in England then that money remains in England.

"It’s simply ludicrous, I think, to suggest that tax growth from England should somehow have to come to Scotland, whereas our position in Scotland is that if we have tax growth we keep it.

"I just think that’s an untenable position, which is not going to be sustainable in reaching an agreement."

He added: "I don’t blame John Swinney for chancing his arm that we keep the Barnett Formula, we don’t bear any risk and by the way if we get any extra money we will keep it. And if there is any extra money in England we will have a bit of that too.

"But I would describe that as having your cake and eating it and then having a bit of everybody else’s cake too."

He said Scots would forgive not forgive either side if they failed to break the deadlock.

"We would be setting aside a mountain of powers because of the Scottish Government’s aversion to a what is really a molehill of risks," he said.

He declined to put a cash figure on potential budget reductions.

Of the alternative possible methods for recalculating the block grant, one would reduce it by £3.5billion within a decade and the other £7billion, according to economist Anton Muscatelli.

Mr Mundell also highlighted comments made by Mr Swinney last year, when he appeared to accept the Scottish Government would take on risks associated with population change.

He said they were at odds with Nicola Sturgeon's view, expressed during First Minister's Questions yesterday, when she told MSPs: "There should be no detriment to Scotland now or in the future simply from the transfer of these powers and that is at the heart of the discussions about the block grant."

Talks were continuing between Treasury officials and their Scottish Government counterparts in Edinburgh, in advance of a meeting between Mr Swinney and Treasury chief secretary Greg Hands on Monday.

Setting out her position during First Minister's Questions, Ms Sturgeon told MSPs: "I will not accept a deal that gives Scotland more powers but only at a big cost to our budget."

She said the Treasury proposals would "strip billions out of Scotland’s budget."