About £700,000 is being taken from Surrey County Council's road repairs budget to settle insurance claims by motorists for damaged vehicles.
Independent councillors have criticised the move by the Tory-run council and said rising insurance claims were a result of a failure to maintain roads.
Tory councillor and cabinet transport spokesman Ian Lake said roads were being repaired and being kept safe.
Pothole repairs in Surrey became a key election issue earlier this year.
Independent councillor Eber Kington said insurance claims by motorists against the council had risen dramatically from 201 in 2006 to 1,676 last year.
He said the council's current road maintenance contract had wasted money and resulted in "poor and shoddy workmanship".
Mr Lake said Surrey had been "grossly underfunded" by central government for the past 10 years and the county needed about £400m to bring the roads up to scratch.
Adding that Surrey's road maintenance contract was currently being re-tendered, he said: "We have contractors in place at the moment, who are finishing up their work on the current contract so I'm not prepared to cast any aspersions on the work they are doing at the moment."
But he added that Surrey saw severe weather last winter and said: "We did have extraordinary weather, the worst weather we've had in 35 years, and the roads did pop all over the place."
Mr Kington said: "Ian Lake has tried blaming the state of our Surrey roads on the government for not giving us enough money, on the winter for daring to snow, and even on drivers from outside the county for having the temerity to drive their cars on Surrey roads."
He added: "The fact is that after six years of Conservative administration running a dreadful contract, they're now reduced to not repairing potholes in the roads because they've got to pay for insurance claims."