Officials at Kensington and Chelsea council are withdrawing documents sent to Grenfell Tower survivors that they feared could have waived their legal rights in return for receiving emergency payments, the Guardian has learned.

A letter sent from the council this week to families affected by the fire asked survivors to sign a form confirming receipt of the emergency “compensation” money. The form stated: “I confirm that this is required to compensate me for expenses I have incurred or need to incur as a consequence of the Grenfell Tower tragedy.”

The document was in addition to the one sent by the Department for Work and Pensions after the prime minister announced the first £5,500 payments in the wake of the disaster, which killed at least 79 people in the west London tower block.

Survivors said they had not been told why they were asked to sign a separate form for the council when the emergency payments were coming from central government. They and their lawyers feared the council form might hamper them from taking any future legal action against the royal borough as a result of the fire.

“The form the council has circulated has increased our anxiety and distress at a time when we are all already deeply traumatised,” said one resident.

A team of black and minority ethnic lawyers are supporting the survivors, many of whom are from similar backgrounds.

The lawyers called for the forms to be withdrawn immediately, and the fire response team, based at Westminster council, commenting on behalf of Kensington and Chelsea, has now confirmed that is happening.

“We utterly condemn the requirement being placed on residents of Grenfell Tower to sign a declaration in order to receive an emergency payment of £5,000 which refers to the payment as ‘compensation’ and states nothing to protect the rights of those who receive it,” the lawyers said in a statement to the Guardian.

“An apology must also be made to those residents who were asked to sign in the absence of legal advice, without any translation into their first language (where appropriate). For survivors who have lost every single possession anything less is simply a disgrace that would add insult to injury.”

Ismet Rawat, president of the Association of Muslim Lawyers, said: “We are deeply concerned that victims were presented with this document without any regard for their vulnerability. As BME lawyers we will continue to protect the rights of the victims and take legal action if necessary.”

In a statement to parliament on Thursday, the prime minister said of the emergency payments: “It is absolutely essential, Mr Speaker, that people understand they can keep the money they receive – that these grants are not loans and they will not be expected to repay a single penny. Neither are they waiving any legal rights as a result of accepting this financial help.”

A spokesman for the fire response team at Westminster council said: “There was an original form that was issued to get information to residents as soon as possible. This is now in the process of being withdrawn. As the PM has made clear, no resident is waiving any legal rights by accepting the financial help on offer.”