But Stephen Twigg, junior education minister, is backing the pound;2.5 million project, despite widespread criticism last year of a deal with the sweets manufacturer Cadbury in which schools were given sports equipment in return for chocolate-bar wrappers.
The Nestle-sponsored Exercise Your Choice scheme was launched last month by pupils from Archbishop Michael Ramsey technology college in Southwark, south London. It will offer young people access to recreational activities such as volleyball, cycling and street dance.
Mr Twigg described it as "an excellent example of how innovative approaches can expand access to opportunities and encourage young people's participation in activity".
Nestle, manufacturer of Kit-Kat chocolate bars and Shredded Wheat, was criticised at its annual shareholders' meeting last month for promoting breakfast cereals to children which have high levels of fat, salt and sugar.
Peter Brabeck, Nestle chief executive, said earlier this year that he starts every day with a slab of chocolate. "I do not think I am obese," he said.
The company has also been targeted by campaigners who accuse it of violating the United Nations World Health Assembly-approved code on marketing breast-milk substitutes in the developing world.
The UK charity Breakthrough Breast Cancer has turned down pound;1m funding from the Swiss-based company because it believes Nestle promotes unsafe baby milk powder.
Mike Brady, campaigns co-ordinator for Baby Milk Action, said: "We are very concerned about companies such as Nestle using activities such as this to gain access to young people, especially as many of the products they are promoting are unhealthy."
John Bangs, head of education at the National Union of Teachers, said: "The Government should be ashamed of itself."
A spokesman for the Department for Education and Skills said: "Corporate sponsors can make a valuable contribution to the promotion of sport and other activities in schools.
"It is important that we get children active and enjoying sport and physical activity - that's what this scheme seeks to do."