Current principal Ken Masters is to go on a 12-month sabbatical to nearby De Montfort University and will be replaced by Bill Bevan, the retired former head of Wigston College, Leicester.

The Further Education Funding Council will also be appointing a new observer to the college board.

Both measures are being used by the FEFC for the first time since they were granted new powers by the Government following the Public Accounts Committee report into Halton College, Cheshire. Melton Mowbray was one of several colleges identified in that report as having weak financial controls.

Melton Mowbray, which the FEFC has already diagnosed as needing “exceptional support”, is known to be actively courting possible merger partners. The Leicestershire college is said to be in a financially precarious position and several senior management positions remain unfilled.

The college board will meet early next wee to ratify the action plan. One insider commented: “The college is in dire straits financially and there is unrest among the staff.”

The last FEFC inspection report on the college in March 1998 found that all its course areas were satisfactory or better. But its financial plans were “inconsistent”.

It added: “There is no well-defined plan to deal with the short to medium-term financial difficulties the college faces.”

The FEFC has decided to use its new powers to intervene at institutions “identified as requiring exceptional support” and after a period of managerial and financial strife at the college. Last September, trade unions at the college passed an overwhelming vote of no confidence in its principal and head of client services Chris Eveling.

In November, the college commissioned an investigation by Terry Melia, chairman of the Further Education Development Agency, into its recruitment of suspected illegal immigrants after bogus students were found to be applying to Melton Mowbray to gain entry visas into the UK.