Sixth forms will shut and jobs will be lost following a "stupid" 7.43 per cent slash in post-16 funding, teachers' unions predicted this week.
Students who stay on in school sixth forms - often the academically brightest - will suffer most from unexpected cuts in the 2009-10 budget, they warned.
But officials justified the cuts by saying that all learners - including adults - would be treated equally.
In a letter, they said school sixth forms had already benefited from "significant increases" and cashed in on anomalies in the present system, but this had been to the detriment of adult learning in FE colleges.
Unions, opposition parties and local government were united in condemnation of the cuts, which affect both schools and colleges.
Gareth Jones, secretary of ASCL Cymru, said the new funding allocations were a "covert" way of axeing sixth forms. The government has already indicated that any sixth form with fewer than 150 pupils is no longer viable.
The finance group of the Association of Directors of Education, the professional group of local authority officers in Wales, was made aware of the cuts in advance.
But the Welsh Local Government Association said the cuts would lead to redundancies.
Dr Brett Pugh, Newport's chief education officer, said six out of eight secondary schools in the city would take direct funding hits.
The Assembly government said the 7.43 per cent budget cut was down to a tight budget settlement.
Under the new formula, funding has been based on accurate pupil rolls instead of forecasts.
As a result, 12 authorities will see their post-16 budgets rise compared with last year - although 7.43 per cent less than expected. But 10 will lose out.
Dr Philip Dixon, director of the ATL Cymru teachers' union, said the cuts "beggared belief" at a time when the nation needs to equip its young people to fight the economic downturn.
Rex Phillips, NASUWT Wales organiser, said the decision was "sheer stupidity" and it made no economic or educational sense.
Elaine Edwards, general secretary of Welsh-medium union UCAC, said it was unreasonable for the government to cut budgets while expecting greater collaboration between schools and colleges over the 14-19 learning pathways.
Anna Brychan, director of the heads' union NAHT Cymru, attacked the short notice and lack of consultation over the decision.
Shadow education minister Andrew RT Davies AM also criticised the decision as "utter madness".
Five local authorities have had their budgets capped by the Assembly government, so they do not lose too much.
Worst hit is Rhondda Cynon Taf, which will have its budget cut by more than pound;900,000. Newport will lose more than pound;500,000.
Education unions across the school and college sector were outraged, saying next year's spending had already been planned and the cuts would cause chaos.
Brian Thornton, regional officer for the AMiE school and college leaders' and managers' union, said: "The continual erosion of funding will transform the FE sector into a `can't do it any more' sector, and this will have a negative impact on the communities and economy of Wales.
"We wish to build a better education sector in Wales on the sound foundation that we have at present, not on the ashes of a sector that has been cripplingly underfunded and left to wither."
Nick Griffin of Voice, the union for education professionals, said: "We'd like to see the development of collaborative approaches that will enable sixth forms to remain viable".
John Griffiths, deputy minister for schools, said the "harmonisation" of budgets had created a level playing field between FE colleges and sixth forms for the first time.
The cuts came on top of newly released figures that reveal a pound;500 funding gap between pupils in Wales and England.