The Torbay MP criticised the Treasury's "top-down" control of local government finance and called for greater financial flexibility for councils.
He said, "If local government wishes to borrow to meet the demand to take services out into the community, it should be able to do so."
He acknowledged that initiatives such as the Pathfinder scheme benefit certain councils but warned that many local authorities are being left out in the cold.
"There are so many other councils out there that aren't accessing [funding] because they don't fit the top-down plan," he said.
Sanders also urged Whitehall to spread e-government funding more evenly across councils. He said, "E-government funding could be spread more thinly than it is now." Every council should have its fair share of it, he added.
Local government minister Nick Raynsford recently unveiled the draft national strategy for local e-government, which outlines how the Government will target the remaining £165m worth of e-government funding remaining from the 2000 spending review.
Officials at the Department for Transport, Local Government and the Regions said that as much as £80m worth of funding will be allocated over the next two years to a number of national projects covering areas like e-procurement, smartcards and customer relationship management.
As much as £75m will also be spent supporting the development of local and regional partnerships between councils and other local service providers such as the police and health service, with £6m devoted to sharing local Pathfinder solutions.