COPENHAGEN - Denmark has set a ceiling on housing rent increases for the next two years, in a move to help struggling households cope with rising living costs, the government said on Friday.

Landlords are allowed under current rules to increase rents in line with inflation, which measured nearly 10% in July, the highest since 1983.

However, the new measure will cap increases to 4% a year over the next two years and will apply to existing and new rental agreements, as well as to rents that have been raised in recent months, the government said.

"It has been crucial for the government to look after Danish tenants. They should not be driven from house and home because of the rampant inflation we're experiencing right now," minister for the interior and housing Christian Rabjerg Madsen said in a statement.

Some 160,000 tenants would be hit by large rent increases, the government said.

The Social Democratic government was backed by three mostly left-leaning parties.

The measure is one of several by Danish lawmakers, including cash handouts to elderly people on low incomes, aimed at cushioning the impact of soaring inflation and high energy prices.

Government efforts to alleviate pressure on household finances could end up causing even more inflation, Denmark's central bank warned in May.

Chief economist at liberal think tank CEPOS criticized the measure on Friday, saying on Twitter that it would hurt Danes' pension savings because many pension funds have invested in tenanted property, while also making it less attractive to maintain existing properties and build new ones.

(Reporting by Jacob Gronholt-Pedersen; Editing by Toby Chopra)