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A major political row has blown up after Scottish Labour leader Iain Gray accused a key government jobs agency of wasting money.

Mr Gray said Skills Development Scotland was spending £2m on changing its name and marketing, during first minister's questions.

Ministers said there was no name change and other costs were used to promote vital, job-creating services.

But Scottish Labour strongly defended its position on use of the cash

The row blew up after Mr Gray told MSPs that Skills Development Scotland was re-branding itself as Scotland The Works under a £555,000 "visual identity transition" and was planning to spend £1.68m marketing its new name.

The Labour leader claimed money was being wasted where it could have been invested directly in more apprenticeships.

Skills Development Scotland said use of the new name as a corporate brand was rejected on 30 March, but Labour said it had obtained internal agency documents from a later date, appearing to show the name change was still due to take place.

The party said the documents showed a "brand migration plan" was created on 27 April and referred to the "destruction" of all SDS materials by the end of April 2012.

The Labour leader, who previously criticised the body for spending £20,000 to bring in TV hypnotist Paul McKenna to talk to jobless youngsters, told MSPs: "Now money for skills has not just been spent on hypnotists, but marketing mumbo jumbo as well."

Mr Gray, who said the agency's "real job" was getting young people into work, asked First Minister Alex Salmond: "That could not be more important - so why are they wasting their money on this?"

A spokesman for first minister said Mr Gray made "fundamental mistakes", adding: "The premise of all of his questions, which is an entirely false premise, his big blunder, was to say Skills Development Scotland was changing its name. It's not, it is not."

The spokesman added: "The £1.68m are the costs that a body that Skills Development does on a regular and routine basis - which is to say it's about promoting the products and the services that it offers to employers and young people as the primary skills body in Scotland.

"It's got nothing to do with a brand migration plan."

And the spokesman said Mr Gray's assertion that the agency was approaching ministers for a £500,000 top-up was a "total misunderstanding".

"The request from Skills Development Scotland to ministers was for additional funding for a programme called The Big Plus, which is an adult literacy and numeracy programme," he said.

'High priority'

A spokesman for Skills Development Scotland, created two years ago from the predecessor organisations Careers Scotland, learndirect scotland and enterprise agency skills arms, said: "Mr Gray has got the wrong end of the stick.

"An internal proposal to use 'Scotland the Works' as a corporate brand was rejected by our directors on 30 March 2010," said the spokesman.

"Our marketing budget of £1.68m pays for the information campaigns that inform employers and those looking for work of the opportunities that exist, ranging from literacy campaigns to modern apprenticeships.

"It is as a result of these information campaigns that we have been able to exceed the target for new modern apprentices and deliver more than 20,000 in the last financial year.

"Without campaigns to make people aware of these opportunities, this would have been impossible. It also includes support for an adult literacy campaign - the Big Plus - a project that we believe deserves a high priority."

During question time, Mr Salmond said Skills Development Scotland exceeded its target to deliver 20,000 new modern apprenticeships in Scotland, adding that youth unemployment was "far too high" at 13%, but was lower north of the border than in the UK as a whole.