A "quickie" Bill to go before Parliament shortly will aim to prevent more children from embarking on the scheme in September 1998.
However, independent schools say the Government's actions may be "constitutionally improper'' in law. Dr Arthur Hearnden, general secretary of the Independent Schools Joint Council, said the Government was bringing in retrospective legislation, overruling a prior agreement.
Independent heads also wish to challenge the intention that prep-school pupils awarded assisted places will lose funding on transferring to senior school.
Chris Parker, chair of the Headmaster's Conference assisted places' committee, said schools were only allowed into the scheme if they could offer the prospect of high academic standards at A-level and prep schools had to prove close links with good senior schools.
A third challenge may be made on grounds of sex discrimination. Boys' prep schools normally go through to 13, while the cut-off point for girls is 11. Girls are therefore more likely to be disadvantaged by the Bill.
Independent schools also want the Government to maintain the subsidy in line with inflation and agree no to increase capping levels on fees. But Ministers have said legal challenges will be unnecessary. The DFEE said: "The commitment is to phase out, not abolish overnight."
It is expected to be six or seven years before the 37,000 existing assisted pupils finish school. Some schools may face difficulties early next century and single-sex schools may be forced to merge to compensate for the loss of assisted pupils.
Figures from the Independent Schools Information Service show almost half of children in the scheme are from socio-economic groups C2, D and E. The Tories said assisted places were an "escape route'' for children, who would otherwise enter an underperforming state sector.
However, analysis by Professor Tony Edwards from the Department of Education at Newcastle University, whose research informed the Labour Party in opposition, shows that assisted-place pupils often come from areas where comprehensives are achieving above-average results. Some independents are outperformed by state schools near them. Pangbourne College, for example, was outperformed at A-level by 25 Berkshire comprehensives.
His research shows inequalities in the availability of places. Liverpool and Birkenhead in 1995-6 had 1,999 pupils on assisted places, while Leicester had 53 and Sheffield 99.
One third of children on assisted places are from single-parent families, but Professor Edwards says, although many of these parents were poor, they had a "high education level". He said: "Financial income is defined in relation to parental income, but if that parent is living with a partner, for example, the partner's income isn't counted."
Many parents said if assisted places weren't available, they would still send their child to the private school. He said: "Quite a few pupils gaining places at 16 are already in the schools."
News focus, page 18