Local education authorities and colleges in Wales will be able to enter into partnership so that pupils over 16 can either take FE courses at their school or, for example, A-levels in computer studies at their local college. The change will mean some pupils in rural areas can pursue FE courses by video link.
The Welsh Further Education Funding Council (FEFCW) will reimburse the authorities for the cost of the partnerships, which are expected to benefit thousands of 16 to 19-year-olds.
Peter Hain, the Welsh education minister, said he hoped the partnerships would break down the "Berlin Wall" between FE and schools and reduce duplication.
A schoolFE partnership has been pioneered in Cardiff, where the tertiary college Glan Hafren has been running GNVQ courses at four comprehensives. Staying-on rates have risen by 10 per cent a year since the scheme started in 1994. But the FEFCW's legal advisers said it was not entitled to pay for education in an 11 to 18 school - hence the change in the law.
The new arrangements will apply only to Wales, which Mr Hain described as a "trail-blazer" rather than a "guinea-pig".
Colleges and schools in England have already started to forge partnerships of this kind despite highly restrictive regulations.
Speaking at a press conference at the Welsh Office in London, he said this was one of several distinctive Welsh clauses in the Bill, currently in its committee stage in the Commons. Stephen Byers, the school standards minister, had celebrated the differences as an example of "devolution in action".
The Government's scheme for helping deprived areas - education action zones - will not exist in Wales unless the new Welsh Assembly (due in 1999) decides it wants them. The reason, said Mr Hain, lay in demographic differences: Wales did not have groups of failing schools in large conurbations but tended to have a failing school alongside a successful one. And its small-scale education authorities could work closely with a school to turn it round.
Wales is also to have different arrangements for planning school places, for admissions and for decisions on school status. Disagreements on admissions policies will go not to an independent adjudicator but to the Welsh Assembly.
In Wales, only the 17 grant-maintained schools will initially be able to choose their status - and the assembly will decide when that moratorium should be lifted.
There are other differences in education policy between the two sides of Offa's Dyke.
In England, David Blunkett, the Education Secretary, has staked his future on getting 80 per cent of 11-year-olds up to the literacy target and 75 per cent up to the maths target by 2002.
In Wales, the targets are broader: between 70 and 80 per cent of 11-year-olds should achieve level 4 or better in English, Welsh, maths and science by that date.