Baroness Blackstone and her officials were this week accused of trying to gag the Association of Colleges, which exposed a pound;19 million hole in Government plans to pilot education maintenance allowances for 16-year-olds.
College and local authority chiefs said that existing sound policies were being damaged.
Officials told the AOC it should check all figures with the Department for Education and Employment before publishing them. They also hinted that the third tranche of the pound;725m committed by Government to expand FE could be at risk if Treasury officials caught "a whisper of complaints" about the way the maintenance pilot was operated.
Lady Blackstone and her junior minister George Mudie rounded on officials for failing to prevent publication of research into the pilots. Inside sources said the permanent secretary Michael Bichard was called in to mediate between Lady Blackstone and the chief FE official, David Forrester.
The row was over pilot schemes aimed at giving all 16-year-olds in education pound;40 a week maintenance grants. Evidence submitted to the Commons education select committee last week revealed that at least 90,000 would actually be worse off by 2001.
The research by John Brennan, AOC director of development, was published in The TES on February 12, the week before the committee met. It revealed that while ministers were pledging pound;100m for the experiment involving 10 per cent of the target group, cash clawed back from local authority discretionary awards and college access funds would leave the rest worse off than before.
DFEE officials instantly denied links between the cuts and funding for the allowances.
The ministers are understood to be concerned that the revelations undermined moves to get tough with failing colleges while targeting cash at efforts to widen participation and raise standards. And they are expected to backtrack on plans to allocate allowances by lottery in the pilot areas. Instead, students will be invited to apply.
The ministers came under fire this week from Conservative education spokesman David Willetts for their "control freakery" and from Liberal Democrat spokesman Don Foster for their harsh treatment of students.
"This latest episode is yet another example of the triumph of spin over substance and the cackhanded implementation of a basically sound idea," Mr Foster said.
An AOC spokesman said they were sticking by the figures. "We are prepared to accept that there was no direct link between the withdrawal of funds from one area and the provision of extra resources for the pilot areas and childcare. But the effects of the redistribution of money will still be very uneven and there will be a pound;19m deficit."
Graham Lane, chair of the Local Government Association education committee and head of the Government advisory group on student support, blamed ministers and officials for an "administrative mess" and failing to implement the group's recommendations.
"Basically, they took away from local government more money than they spend on student support and maintenance, but that money did not get to the colleges."