Fresh controversy is looming over the Government’s plans to create three new categories of schools, with some of its closest allies in local authorities now lining up to condemn the move.

With relations between the Labour party generally and the Government said to be strained, London councils this week rejected plans to retain grant-maintained schools under the new foundation category.

The Local Government Association will hear today that continual battles over structure - as schools choose between foundation, community or aided status - may impede the drive to raise standards.

It is set to tell David Blunkett, the Education and Employment Secretary, that the rows will not be resolved unless it is made absolutely clear that no single category of school will enjoy advantages over another. Much of the deep resentment over GM schools has centred on shares of funding.

Sources close to the Government insisted this week, however, that the proposals for foundation schools - the category closest to the opt-out sector - would not be dropped despite widespread unhappiness.

Opponents claim that foundation status will lead to the creation of an opt-out sector in exile. They believe that foundation status - and the sector - should be abolished, and this week the Association of London Government called for all GM schools to be returned to either community or aided status under the control of LEAs.

The proposal was put forward by Labour members of the education committee, which includes chairs or representatives of all 33 Greater London LEAS, and supported by Liberal Democrats.

David Cornwell, the Lib-Dem spokesperson, said: “It speaks volumes about the Government’s policy that only Tory LEAs are willing to support it.”

In a separate move, the Local Government Association will today suggest that schools should be reallocated to the category nearest their former status rather than being given three choices.

The LGA says schools wanting to become foundation schools should have to make out a good case for doing so - “or at least only GM schools should be given the choice of category initially.

“There is no enthusiasm for the possibility of a plethora of ballots if all schools should decide to consult parents. The LGA fears that the present proposals will not have the effect of limiting turmoil,” it says.

GM schools have urged the Government not to bow to pressure from LEAs to drop foundation status.

The Grant-Maintained Schools Advisory Committee said: “We believe that the bid to remove the foundation option is indicative of LEAs’ traditional desire to reassert the very rigid and prescriptive control which drove many schools to opt for GM status in the first place.

“We believe that the establishment of the three categories will enable the climate of creative tensions between schools and LEAs to be maintained in the future.”