David Blunkett, the Education Secretary, is furious that SOLOTEC, the Bromley-based TEC, made the payment to John Howell.
Mr Blunkett said: "There are no circumstances where such a payment could be justified. TECs are unique organisations. Although private companies, they have been entrusted with the stewardship of very large sums of public money in the interests of the local community they serve. This money would have funded training for 200 unemployed people in south London.
"I no longer have confidence in the ability of those SOLOTEC board members who originally agreed this severance package to discharge this important responsibility and I have today written to Sir John Wickerson, the chairman of SOLOTEC, expressing my concern and inviting the board members concerned to consider their position."
The announcement comes at a disastrous time for TECs which are fighting for their life following the post-16 review.
Michael Bichard, permanent secretary at the Department for Education and Employment, has written to all TECs to draw their attention to Mr Blunkett's views.
His letter said that while TECs were free to set their own terms and conditions for staff "they are also accountable for spending public money wisely and are expected to act in a way that can stand the test of public scrutiny". He added that "the payment made by SOLOTEC falls short of these obligations and cannot possibly be justified".
He warned that ministers would act against any TEC which fails to meet the expected standard. TECs receive pound;1.3 billion of public money a year.
A SOLOTEC spokesman said the severance payment "was in compliance with the TEC's contractual obligations (to Mr Howell), which the board endorsed at their last meeting as the only way forward".
SOLOTEC is to merge with Business Link London South and the board was to stand down as a result of that re-organisation. Mr Howell applied unsuccessfully to be chief executive of the new body. John Saunders, who managed the merger of Hereford and Worcester TEC, Business Link and local chambers of commerce, will be chief executive of a holding company for a year.