Shares in Royal Mail have risen 50% above the offer valuation a week ago to hit more than £5 as Business Secretary Vince Cable admitted he was told before the float that the price could soar.
He said that earlier in the preparation for the sell-off during the summer, the threat of strikes by Royal Mail workers left some potential investors saying they were not willing to buy.
An initial price range of 260p to 330p was set, with the lower end factoring in possible escalating industrial relations problems that might push it down.
Mr Cable has dismissed the flotation fever , which saw the value of the company immediately soar by £1 billion when trading began last Friday, as "froth".
But shares climbed as high as 501.1p in today's session, valuing Royal Mail at £5 billion. The initial offer price of the company's shares at 330p had calculated it at £1.7 billion less.
Last week's surge saw the price climb steeply to 455p by the close, but the continuing rise showed that even at that value investors were keen.
Full trading in the shares, when members of the public who had bought them directly from the Government were able to cash in profits on the rise for the first time, began on Tuesday.
But the price continued to tick upwards as appetite remained unabated.
In a new letter to MP Adrian Bailey, chairman of the Commons Business committee, Mr Cable admitted that revising the price range upward was considered in a late stage of preparations for the sell-off "given the demand generated".
But he said this was not pursued based on assessment of the demand in the order book and where it would begin to taper off, "especially from informed potential long-term investors". Some of these expressed concern about an increase, he said.
Goldman Sachs and UBS, global co-ordinators (Glocos) for the sale, advised against a rise above 330p, citing the risk involved and necessity of having to offer retail investors two days' withdrawal rights.
The view was endorsed by the Government's independent advisers at Lazards, Mr Cable said.
But he added: "The Glocos subsequently advised us to expect a volatile after-market with the risk of a significant (upward) spike in share price."
This was because of the momentum behind the privatisation, widespread predictions of such an increase in the media, shortage of initial supply of the stock, and the delaying of a union strike ballot.
Save Our Royal Mail campaign director Mario Dunn said: "Business Secretary Vince Cable is now claiming that if the Government had priced Royal Mail shares above 330p demand would have dropped.
"This is nonsense. Mr Cable is directly responsible for the taxpayer losing hundreds of millions of pounds. He should do the decent thing and resign."
Shares later rose as high as 508.3p, before closing at 502.5p.
Communication Workers' Union general secretary Billy Hayes said: "For Vince Cable to blame the low share price on the possible threat of industrial action is laughable.
"This appears to be Vince Cable's own 'froth' in a woeful attempt to deflect blame for losing the Treasury such a significant sum.
"The share price has broken the 500p per share mark today - now more than 50% higher than the level he approved for the float - meaning he's undervalued the company by £1.7 billion and lost the taxpayer £900 million."