Small sixth forms in schools are uneconomic and are costing the country #163;500 million a year, according to an unpublished government report, leaked to The TES.
A quarter of sixth forms have fewer than 100 pupils, while half have up to 150.
The report is believed to show it costs 25 per cent more for a student to be taught in a school sixth form than in an FE or sixth-form college.
There are 1,807 schools with sixth forms. Many are thought to be supporting them by using money intended for younger pupils.
Colleges are funded by a formula which takes into account the course taken, recruitment, retention, and results.
Schools receive a sum of money for each sixth-former. Unlike colleges, if the pupil drops out the school keeps the money allocated that year.
Labour MP David Chaytor said: "This is a classic example of teachers' interests and pressure from governing bodies overriding the educational interests of their students, so they can maintain the status symbol of a sixth form.
"What is happening in some cases is younger children are being robbed to pay for others to take their A-levels at their school."
If small sixth forms were scrapped, the Pounds 500 million saved could be used more efficiently by colleges, the FE sector argues.
Mr Chaytor is to introduce a Bill under the 10-minute rule next week in Parliament, highlighting the inequity between school and college funding.
He believes the internal market in post-16 education has created tensions which are preventing strategic planning. The Bill has no chance of being accepted by the Government, but it will promote debate.
The DFEE has been running a pilot study of post-16 funding in 28 local education authorities. In one it found that Pounds 500,000 could be made available for the post-16 sector by closing all its sixth forms.
Last year the Government published a report which said post-16 funding in schools was slightly better than in FE colleges. However the FE sector and the Local Government Association claimed the figures were skewed by ministers to obscure greater differences.
This year's report is thought to be delayed because ministers need time to respond to the exposure of this funding difference.
Judith Norrington, the Association of Colleges' director of curriculum and quality, said: "We want greater equity in funding and the opportunity for colleges to provide a wider curriculum, including careers advice and sports, for 16 to 19-year-olds."
John Dunford, general secretary of the Secondary Heads Association, said many sixth forms offer high-quality education by specialising. He said the funding was complex and ready comparisons hard to make.
Lindsey Wharmby, headteacher of Lawnswood school in Leeds, with a 250-pupil sixth form, said: "The funding mechanism should not drive the educational argument."