More than 800,000 private shareholders of Bradford & Bingley were today urged to vote down the lender's £400 million fundraising plans next week.

The UK Shareholders Association (UKSA) said smaller shareholders - which hold around 35% of the group's stock - "should consider ignoring" the board's recommendation to support its current plans.

UKSA has been angered by B&B's proposals to boost its finances by selling a 23% stake to private equity firm Texas Pacific Group (TPG) and carrying out a deep-discounted rights issue.

B&B's board rejected alternative fundraising plans from investment firm Resolution last week, refusing to give it access to the books.

Resolution was backed by several of B&B's institutional investors but walked away on Friday blaming an "entrenched" B&B board.

UKSA director Roger Lawson said: "In our view they have not provided adequate explanations for why the proposals were unacceptable and have not given Resolution the opportunity to clarify their proposals further, while unnecessarily blocking access to the required financial information.

"We therefore suggest that shareholders should consider ignoring the recommendation of the directors to vote in favour of the rights issue and the TPG investment."

The bank's present fundraising plans were also branded "unacceptable" by the Association of British Insurers, which said the rights issue and private equity stake sale breached "fundamental principles".

The ABI said the the move removed the right of pre-emption for shareholders - in which new shares should be offered to existing shareholders in proportion to their existing holdings - and gave "preferential treatment" to TPG.

B&B's shareholders will vote on the move at an extraordinary meeting on July 7.

Mr Lawson added: "We encourage shareholders to attend ...and try to get more answers from the directors as to why they feel their current proposals are better than those outlined by Resolution."

B&B defended its stance on Friday, saying Resolution was attempting an effective takeover and failed to meet the board's concerns on "certainty, funding, clarity, change of control, and price".

The firm's balance sheet has been hit by losses on investments linked to the credit crunch and rising arrears, forcing it to lower the price of its original rights issue at the beginning of June as its shares fell.

TPG's cash had been lined up alongside a deeply discounted rights issue - a call on existing shareholders for cash - which would have raised another £258 million.

B&B said it was proceeding with its capital plans through a bigger rights issue, which would raise £400 million after fees. This is being underwritten by banks Citi and UBS.

The lender said TPG's withdrawal came after ratings agency Moody's downgraded its unsecured and long-term debt ratings, which effectively tells the market that the firm is a greater investment risk.

B&B's executive chairman Rod Kent said: "Whilst we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi and UBS and our major shareholders continue to support our proposed capital issuance.

"Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."

The funding plan involving TPG had attracted a raft of criticism from investor groups.

The Association of British Insurers (ABI) branded it "unacceptable" because it removed the right of pre-emption for shareholders - in which new shares should be offered to existing shareholders in proportion to their existing holdings.

This is the third time B&B has had to change its funding plans.

In May the lender, which specialises in the buy-to-let mortgage market, first announced a £300 million rights issue to help shore up its balance sheet.

Then last month B&B announced it was bringing TPG on board, and reducing the size of the rights issue to £258 million.

A rival funding bid led by investment group Resolution, involving the injection of £400 million by a series of major investors, was rebuffed by B&B last week.

The lender is suffering amid a triple whammy of credit crunch-related write-downs on investments, soaring wholesale borrowing costs and rising numbers of borrowers falling behind with repayments.

It has been particularly vulnerable to the crisis in money markets because it previously raised more than a quarter of its capital through wholesale funds.

B&B unveiled an £8 million pre-tax loss in the first four months of 2008 after arrears climbed sharply.

Around 35% of the company's shares are in the hands of private investors, who have holdings of up to 250 shares. Many of these shareholders are former B&B members who picked up stock when the society demutualised.

B&B's shareholders were due to vote on the TPG fundraising and rights issue on Monday but a meeting to approve the new plans will now take place the following week, the lender said.

Shares in the bank fell as much as 9% early today. They have fallen to around a seventh of their value a year ago.

Broker Panmure Gordon said investors would be hoping that Resolution would return to the table with its funding plans.

"In view of the declining fundamentals and TPG's withdrawal, however, we think this hope may be in vain," analyst Sandy Chen said.

"In our view, B&B must now run the gauntlet of an emergency rights issue, more difficult funding conditions, and a rapidly deteriorating macro(economic) environment."