Michael Gove has been accused of stripping £400m from a fund for extra school places in order to plug a financial "black hole" in his free schools programme in a move described as "nothing short of lunacy".
A senior Government source also accused the Education Secretary of being willing to see children struggle for a classroom place so the department can "lavish" money on the free school "experiment".
The attack is the latest coalition spat with the Department for Education at the heart of it.
Deputy Prime Minister Nick Clegg was earlier this week accused of "lying" over how plans to provide free school meals for infant school pupils would be funded.
The senior Government source said: "Michael Gove is so ideologically obsessed with his free school experiment, he's willing to see children struggle to get suitable school places.
"Everybody knows there's real pressure on school places at the moment. It is nothing short of lunacy to slash the amount of money available for new school places to lavish on free schools.
"Michael Gove was warned by the schools minister David Laws that this was a bad idea but the zealot pressed on anyway.
"The Conservatives are putting the needs of a handful of their pet-projects ahead of the requirements of the other 24,000 schools in the country."
The source claims Mr Gove reduced the basic need allocation by £400m - enough to provide around 30,000 new school places - to £2.35bn between 2015 and 2017 to help fund an overspend in the free schools budget of around £800m between 2013 and 2016, the source said.
A spokesman for Mr Gove said: "The suggestion we are cutting money for new places in areas of need to pay for free schools where they are not needed is totally wrong.
"These claims pretend that money spent in free schools is not creating new places in areas of need. That is simply not true.
"From 2015, funding to councils for new school places will rise by more than £200m a year. On top of this, investment in free schools will provide tens of thousands of new places in areas of need.
"Indeed the vast majority of free schools - more than seven in 10 - are in areas with a shortage of places."
David Cameron responded to the allegations by telling Sky News: "What the government is doing is putting £5bn in this parliament into expanding the number of school places.
"Part of that is investing in free schools, most of which in the primary schools are in areas of high need, and they are providing good new school places for people inside the state sector.
"I think you should judge the government on its results in education. We are seeing real progress."
Former schools minister Nick Gibb told Sky News: "This is a legacy from the previous government not having put those plans in place to provide new schools."
Shadow education secretary Tristram Hunt said: "The free school programme had the Lib Dem stamp of approval from day one. They're as much to blame for the failings as the Tories."
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