They say pressure over parents' right to choose schools for their children could take away their power to plan the best use of resources and settle disputes.
The DFEE has stepped in following a dispute in Nottingham where 12 children have been admitted to a grant-maintained special school against the wishes of the local authority. The dispute is due to go to a special needs tribunal, but Nottinghamshire County Council fears that even if it wins, GM special schools will still be able to admit children regardless of a local authority's recommendation.
This could wreck established procedures in which local authorities have had effective control over where children should go.
The dispute brings to the surface the potential for conflict after the 1993 Education Act allowed special schools to become grant-maintained but at the same time said local authorities were responsible for the education of children with special needs. Parents are entitled to express a preference but the LEA decides on a child's school placement when drawing up a statement of special needs.
The issue has probably not arisen until now because there is still only a tiny number of GM special schools. The Nottingham children's parents wanted them to go to Foxwood special school in Broxtowe, Nottingham, and kept them away from school for three weeks last term.
They refused to send the children to two other local authority-run special schools, which the children's statements of special needs said they should go to, but after taking advice from the DFEE Foxwood admitted them until the tribunal appeal is heard.
Even if the tribunal decides the children should go to the local authority schools, Nottinghamshire says, the present law still means GM schools can admit children with statements naming other schools.
A spokesman for the county council said: "We view this as a serious erosion of our statutory duty to make efficient and effective use of our resources. "