Education authorities have urged the Government to sort out the "chaotic" post-16 system following the revelation that more than 40 Kent schools are running illegal sixth forms.
News that the schools - five of them grant-maintained - are running sixth forms without approval from the Department for Education has led further education minister Tim Boswell to call for a meeting to discuss the situation.
The revelation comes in a week when the Government announced it is considering deregulating the post-16 market. Gillian Shephard, the Education Secretary, said at the launch of the White Paper on Competitiveness that she was planning to remove the legal restrictions on schools operating sixth forms.
LEAs are also concerned about the growing practice of schools recruiting A-level students at preferential rates to non-existent sixth forms, passing them on to colleges and splitting the profits.
Ian Langtry, education officer with the Association of County Councils, said: "There are enough examples coming up to make us realise that the law is in chaos on post-16 planning."
Under the deregulation plan, schools would be set tough performance goals similar to those which operate in further education colleges. Mrs Shephard said: "It is time to make sure that the record amounts being spent on schools measure up to outcomes."
The situation in Kent is particularly embarrassing for ministers as the sixth forms concerned are being funded through the Government-approved formula, which gives schools Pounds 2,555 for each A-level student and Pounds 2,044 for each student following vocational courses.
It has also created a political dilemma in an area where there are a number of marginal Tory constituencies.
Mr Boswell, who next month will meet local representatives and top officials from the Government's school and college funding agencies, said he could not condone the actions of the five GM schools - Aylesford, Wrotham, Senacre technology school, Oldborough Manor community college and Meopham in flouting its rulings. They may now have to resubmit applications.
George Thompson, head of Wrotham, which has 100 sixth-formers, said: "If we are to meet national education and training targets, small sixth forms have a role ; large institutions do not suit everybody."
But the implications of the Kent schools' actions has worried LEA leaders. Roy Pryke, the county's chief education officer, said: "It is a situation that needs to be resolved."
In Kent, the situation is exacerbated by a complex system which comprises grammar, comprehensive, church, GM and high schools, many of which have approval to take in pupils up to the age of 17.
Funding for the unapproved sixth forms is provided by the LEA under its local management scheme. The Department for the Environment in turn makes provision for them in its estimate of what the LEA should spend. Its calculation for post-16 funding is based on how many pupils are in sixth forms.
Several unofficial sixth forms in Kent were launched under the previous Tory administration. Among schools now seeking approval are Astor in Dover, which has run a sixth form since the 1960s and offers 24 A-levels, and Castle High in Deal, which piloted GNVQs in the county and has had an unofficial sixth form since 1991.
Ronnie Norman, Conservative spokesman on education, said: "I suspect we turned a blind eye because so many of them (the sixth forms) were small. Probably we weren't firm enough."