In an interview on BBC Radio 4, Mrs Shephard said the current financial round would not necessarily mean fewer teachers in every area, but she admitted that in some areas there may have to be a reduction in teaching posts.
In a letter written before the budget Mrs Shephard predicted that thousands of jobs could be lost if there was insufficient funding.
Tony Blair, the Labour party leader, took up the issue at Prime Minister's question time and said: "Why don't you listen to the voices of parents and governors and teachers who speak for Britain when they say that if we fail to provide properly for our schools, we are letting not just our children down, we are betraying our country's future."
Mr Major said: "Of course we have recognised from the outset that this year's settlement is tough on education. We've never made a secret of that fact. What we have made clear is that local authorities must choose their priorities, and we believe that teachers in the classroom are a priority and that they should be a first priority among education authorities."
He said councils should cut administrators rather than teachers and added that use of reserves and efficiency savings should make up any shortfalls.
The same morning at a rally of more than 1,000 teachers, parents and governors David Blunkett, Labour's education spokesman, said a Labour Government would have fully funded the 2.7 per cent increase recommended by the School Teachers' Review Body. He said: "If you withdraw negotiating rights you have a moral responsibility to pay teachers and support staff to do the job you ask them to do in schools."
A Labour MP has accused the Government of ignoring its own legal advice which could give governors a short-term solution to rising class sizes. The advice said that it would be appropriate to cut pupil intake to reduce class sizes or to make it easier to deliver the national curriculum.
But according to a letter to local education authorities obtained by Stephen Byers, MP for Wallsend, the Department for Education has decided that it would be unlikely to accept applications to reduce numbers for these reasons.
Mr Byers said the Education Secretary was closing down an option available to school governors. The measure however is seen as a short-term solution because the following year the school will receive reduced funds because of the reduction in pupils.