Housing Minister Margaret Beckett claims there are signs of an "upturn" in the property market despite figures showing prices are still plummeting.
In an interview with the Sunday Times, she even expressed concern about the dangers of a new inflationary bubble in house prices once the economy picks up.
Her comments risk igniting a new political row after Business Minister Baroness Vadera's claim last week that she could see the "green shoots of recovery".
Following her remarks, Gordon Brown was forced to step in and declare the Government was "never complacent" about the economy.
In her interview, Mrs Beckett said that there were recent "indications" that interest among homebuyers was picking up, despite the crash in property prices.
"We're hearing indications of certainly a maintenance of customer interest, possibly even a bit of a pickup," she said.
"Some people have been saying the appetite to buy has gone through the floor, but clearly we've had this anecdotal evidence of a bit of an upturn in interest."
Her comments were thought to be based on a new survey by the Royal Institution of Chartered Surveyors (RICS).
The survey found the number of new buyers registering with estate agents had risen to its highest level since 2006.
However, it also reported that the number of sales per agent had slumped to its lowest level since the survey began in 1978.
Mrs Beckett said there was now "considerable pent-up and growing demand" for houses which could lead to an "inflationary bottleneck" unless more homes are built.
"That's the last thing we need," she said. "I'm sure a lot of people are thinking that one of the outcomes of these problems is that there will be lower-cost housing available."
Her comments came on the eve of a grim forecast from the Ernst & Young Item Club, which predicts house prices will fall another 16% this year, the Sunday Times said.