Mr Prescott's committee will report within six weeks

The government has accused local authorities of withholding �500m intended for head teachers.

But councils say they have not received the money needed to overcome a funding shortage which leaves thousands of teachers facing redundancy.

The committee, which contains local government and Department of Education and Skills (DfES) representatives, is due to report back within six weeks.

'Additional funding needed'

The Times newspaper reported that Mr Prescott's decision had come about after he asserted his authority over Education Secretary Charles Clarke at a meeting.

But the DfES denied a rift had occurred between the two men.

A spokesman said: " As Charles Clarke said to the House in his written statement on 15 May, the DfES has established a working group with our partners - in local government, and head teacher representatives - to consider changes to next year's funding arrangements.

"This is now being taken forward, but the important thing is the work involved, not the process. And that is to ensure that all school receive a reasonable per pupil budget next year."

Some schools face debts of around �200,000 as they struggle to fund increases in teacher pay, pensions and National Insurance.

Last week, the government freed up money put aside for building repairs to be used for day-to-day running costs, such as wages.

Some schools said this would help with their immediate problems.

Others, however, have already allocated their repairs budgets, meaning no extra cash has been made available.

Doug McAvoy, general secretary of the National Union of Teachers, said: "The NUT welcomes the decision of John Prescott to set up an emergency committee to resolve the schools' funding crisis.

"The inquiry is necessary to assure parents and teachers that schools have the funding they need this year and through until 2006 and to reinforce the important role of LEAs.

"The emergency committee is to report within six weeks, but within six days teachers and support staff will begin to receive redundancy notices.