Nearly 300,000 children who completed primary school education last year are being denied a secondary place because of a lack of facilities.
The number of primary pupils going on to secondary school this year reached a record high, although this represents only 57 per cent of the children who want to carry on with their education.
George Saitoti, education minister, said that out of the 671,550 candidates who sat the primary exit examination, only 380,587 will get places in the country's 4,000 secondary schools.
For the first time, slightly more girls will enter secondary school than boys, although most will go to low-cost private and public schools which tend to have poor facilities and high drop-out rates.
Primary education was declared free in January 2003, and the government is using a quota system to increase the proportion of refugee children and pupils from informal slum schools and drought-stricken areas attending elite national secondaries.
Professor Karega Mutahi, permanent secretary for education, said: "If selection was to be based on performance in the Kenya certificate of primary education, that would limit access to pupils from high-income urban areas."
Hilary Benn, the UK's International Development Secretary, who was on a visit to Kenya last week, said he was impressed with the country's efforts towards achieving education for all, but more had to be done for the 3 million children who are still not in primary and secondary school.
Mr Benn announced that the UK is to give pound;60 million more in aid to provide clean water, sanitation and bursaries to help reduce school drop-out rates.