Ministers want to ensure that schools cannot use exclusion to boost their apparent performance in league tables.
They are planning to change the way performance league tables are calculated to make the excluding school responsible for the pupil's exam results. This would mean that the school would lose funding, but remain accountable for education no longer provided.
Rowie Shaw, director of professional services at the National Association of Head Teachers, said: "It is like a golden handcuff deal."
The move is part of the Government's attempt to cut the number of permanent exclusions by a third within the next four years - a figure which the NAHT claimed had been "plucked from the air".
It said that suggestions that schools deliberately excluded poorly-performing pupils were offensive and unwarranted.
David Hart, NAHT general secretary, added: "Heavy-handed attempts to cut exclusion by forcible means, in pursuit of artificially-fixed national reduction targets, will not wash. Nobody in their right mind could ignore the need to reduce exclusions and truancy. But the Government's approach is misconceived."
The proposals to change the way league tables are calculated come from the Government's social exclusion unit. Local authorities would also be required to set targets for reducing truancy and exclusion.
According to the social exclusion unit, one-quarter of secondary schools is responsible for two-thirds of permanent exclusions. One-quarter does not exclude at all.
Last year, the London borough of Hammersmith and Fulham excluded four times as many pupils as Newham in east London, and six times as many as Oxfordshire.
The number of pupils permanently excluded nationally last year was 13, 500 - up more than 10,000 since 1990.
The NAHT comments come in its response to consultation on the proposals.
The union said heads had to justify their decisions to governing bodies and often appeals panels and that the peak ages for exclusions had always been 14 and 15.
"The suggestion that those decisions are not taken in the interests of all concerned, including those of the excluded pupil, is offensive and unwarranted. This is clearly a deliberate penal attempt by the Government to reduce exclusion rates by artificial means."
The NAHT also attacked the Government decision not to include independent schools, arguing that excluded public- school pupils found their way into the maintained system.
"A system which penalises state schools in performance table terms should include independent schools, otherwise it becomes doubly unjust," it said.