Southwark College admitted last week that it decided to press ahead prematurely with the construction of a hair and beauty salon, bistro and florist shop to ensure it did not lose out on a pound;225,000 renewal grant from the Skills Funding Agency, which had to be spent by the end of last month.
Despite agreeing to give the scheme - on The Cut near the South Bank - retrospective planning consent, members of Borough and Bankside Community Council's planning committee spoke of their "disappointment and annoyance" that the college had broken the rules. It had started the building work at its Waterloo centre in late 2010, before the council had even considered the application.
The council's planning enforcement officers had started an investigation into the case before the retrospective application was approved this month.
Deputy principal Phil Butler told councillors that the college had taken the view that the risk of losing the funding was greater than the risk of not gaining planning permission.
Sarah Coveney, who runs a nearby florist shop, told a local news website that the college's tactics were "underhand". "They should know the rules - the rest of us have to live by them," she said.
The college also came under fire for failing to consult its neighbours about the plans.
A Southwark College spokeswoman said: "The college did not require planning permission to start building work as many of the works were internal and did not involve a change in the use of space; it was never the college's intention to open the hair and beauty and retail outlets to the public before receiving planning permission.
"Without planning permission to open to the public, the new facilities were simply classrooms simulating working environments, for which the college did not need permission. With planning permission, the new facilities become `real working environments' where students can get training and experience on customer service and generally interacting with the public, as well as learning a craft or vocation."