Kent, which has the channel ports and the Channel Tunnel, takes in hundreds of school-aged refugees every year. It says that integrating them into ordinary classrooms would be expensive and disruptive.
But the proposal has angered aid agencies who fear that the children of refugees and asylum-seekers - including new arrivals from Kosovo - will be denied a proper education.
Under the Government's Immigration and Asylum Bill, which comes into force later this year, asylum-seekers could see their cases decided in six weeks instead of taking up to three years. And instead of receiving benefits which which campaigners say will further stigmatise the children, refugees will be given vouchers to buy food and clothing.
Sandy Bruce-Lockheart, leader of the council, said: "If the Government says they have to go home in a few months, they don't need to be integrated into normal schools. It really is sensible to have some form of interim education. In all probability, in Kent, 80 per cent of them will be going home anyway, because they are economic migrants."
There are an estimated 55,000 asylum-seekers and refugees across the UK. Of these 10,000 are from Kosovo. There are around 1,500 refugees in Kent, many from Albania which borders Kosovo and is the poorest country in Europe.
Mr Bruce-Lockheart said: "At present they are scattered across 20 schools, one or two in a class with a need for several interpreters. It's phenomenally expensive." Mr Bruce-Lockheart said the council spent pound;3.8 million last year housing and educating refugees which posed an "unfair burden on Kent taxpayers".
Councillors are calling on ministers to either refund some of that money or allow them to set up separate schools, which they say will be cheaper to run.
Naomi Chunilal, social policy officer at the Children's Society, described Kent's proposals as "educational apartheid". She added: "If an authority doesn't want refugee children in its schools, then I very much doubt it would provide adequate education of a different kind."
Richard Williams, education adviser for the Refugee Council, said: "It is vital that refugee children mix with other children in ordinary schools, both psychologically, and because research around the world shows that mixing with native speakers is the quickest way to learn English."
Home Secretary Jack Straw is believed to be in favour of changes to the way in which refugees are taught. However, the final decision rests with the Department for Education and Employment. Junior education minister Charles Clarke said there was plenty of evidence to suggest inclusive education was best.
Other European countries, such as Denmark, already have separate refugee schools, which were set up during the Bosnian war in the mid-1990s.
* Schools will be expected to find potential places for thousands of Kosovan refugees, as ministers announced plans to step up the airlift of victims of ethnic cleansing in Kosovo. Up to 1,000 refugees a week will be flown to the UK from today. A Department for Education and Employment spokesman said it was liaising closely with both the refugee council and local authorities to make sure places were available in schools when it became clearer in which towns the refugees would be settled.
The parents of Kosovan refugees who arrived in Leeds last week have asked for their children to start school as soon as possible. Two weeks ago 120 refugees, 84 of them children, flew into Britain as the United Nations evacuates the most vulnerable from the war zone.