The Queen has been awarded a 66% pay rise to fund a £369m 10-year refit of Buckingham Palace, after the prime minister and chancellor agreed that an increase in the sovereign grant was the best way to fund urgent repairs.

Officials warned there was a risk of a potential “catastrophic building failure” if the repairs were not carried out, but backbench Labour and Scottish National party politicians questioned why the monarch was getting so much more money at a time of austerity.

The refurbishment, the biggest undertaken on the property since the second world war, will renew the palace’s 33-year-old boilers, 100 miles of electrical cable, some of it 60 years old, and 20 miles of lead and cast iron pipework. The Queen will not move out, it had been previously thought she would.

Royal officials said the refurbishment would “future-proof” Buckingham Palace.

Tony Johnstone-Burt, master of the Queen’s household, said: “On completion of the work, we’ll have a palace fit for purpose until 2067.”

Though the palace is the venue for glittering state occasions, royal officials have long complained of the crumbling building and the need for it to be updated. Examples include a chunk of masonry falling from the front facade several years ago and narrowly missing the Princess Royal’s car and staff reportedly resorting to catching rainwater in buckets to save art works. Last year, when a workman tried to carry out repairs to the Queen’s private chain-pull toilet, the whole structure reportedly came away from the wall.