China's central bank added fuel to fears on Thursday it was clamping down on inflation risks as it allowed cash to drain from the financial system for a second straight week, sparking a jump in short-term rates.

The move by the People's Bank of China (PBC) happened as Beijing stepped up its efforts to counter surging property prices in the capital in an attempt to calm rising discontent over the city's record-high home prices.

China also widened the funding options for local governments and property companies by giving them access to the interbank bond market to finance affordable housing, a priority of Chinese leaders, sources told IFR, a Thomson Reuters publication.

Housing data released earlier this week has raised fresh concerns about property bubbles in major cities, which could add to consumer inflation - already at a 7-month high - and add to criticism that home prices are increasingly out of reach for many.

Zhu Haibin, chief China economist at JP Morgan in Hong Kong, argued the tighter conditions were overdue. A pick-up in the economy had probably reassured the central bank it could raise rates without damaging growth.

"That will increase the determination of the PBC for credit normalization, for credit tapering. The policy in the last few years overall has been very loose, with credit growth way higher than nominal GDP," Zhu said.

The central bank, which sparked a market panic in June by engineering a cash crunch, refrained from taking part on Thursday in scheduled money market operations for the third consecutive time. It has drained more than 157 billion yuan ($26 billion) from money markets since the week of September 30.

In response, China's seven-day repurchase rate - a benchmark for short-term funds - jumped by nearly a full percentage point to 5 percent at the open on Thursday.

"Cash demand is going to be high in October because people have to pay taxes and banks have to park reserves with the central bank," said Hong Hao, chief strategist at Bank of Communications International Securities in Hong Kong.