Universities and colleges have been warned that their entire grant for teacher training will be cut off if they fail to co-operate with inspections.
Lecturers would jeopardise the future of their departments if they boycotted external assessments during pay disputes under the new terms and conditions.
The Teacher Training Agency, which accredits and funds all teacher training, notified university vice-chancellors and college principals about the proposed penalties last week.
The document says that inspectors from the Office for Standards in Education must be allowed access to the college buildings at all "reasonable" times and must be provided with any documents they ask for. Staff and students must be available for observation. TTA staff are to be allowed free access to files and accounts for auditing.
If the agency or OFSTED feels that the university is not co-operating, all grant for each month in which there has been a breach of the conditions will have to be repaid. This would be one twelfth of the total annual grant, and, as the document admits, "in effect it represents withdrawal of funding until compliance is secured".
The harsh new sanctions are believed to be an attempt to ensure that the boycott of inspection visits by members of the Association of University Teachers late last year during the university pay dispute is not repeated.
Another possible motive is to forestall a repeat of last year's angry resistance to Chris Woodhead's reinspection of primary teacher training - ordered because the chief inspector thought his staff had been too kind the first time round.
Institutions will also be penalised if they fail to provide the agency with information about their courses: if it is late, inadequate or in the wrong format, the institution will forfeit 1 per cent of its total annual grant for every notification of non-compliance.
Last year's industrial action by lecturers involved withdrawal of co-operation from all external quality assessment by OFSTED and the Higher Education Funding Council. OFSTED took a notably tougher line than the council, refusing to postpone inspections until the dispute was resolved. The result was that its schedule of inspections was disrupted.
The tone of the agency's document is in marked contrast to the teacher-train ing section of Sir Ron Dearing's higher education report published last week. The report was highly critical of OFSTED's inspection sweeps, suggesting that institutions may have been awarded gradings on "uncertain evidence" and that the agency's demands for information were overburdening universities.
Universities have until September 19 to respond to the agency's funding proposals.
Emma Westcott, policy spokeswoman for the AUT, said the proposals were disturbing: "Why should the employment rights of staff in departments of education differ from those of their colleagues just because the funding of teaching in their subject was transferred to the TTA?
"University staffrooms are hardly hotbeds of radicalism, but now they are being denied the right to withhold goodwill."
Sheena Evans, the agency's head of finance, said that the agency had sought legal advice following the disruption of inspections last year: "We were advised that what was implicit should be made explicit. People should be aware of the penalties, but total withdrawal of funding would be a last resort."