A deal on teachers' pay and conditions could lead to a crippling shortfall in some Scottish local authority budgets, it has been claimed.

Highland councillors have warned that the settlement, based on the recommendations of the McCrone Committee, will hit rural authorities hardest.

Councillors claimed that the Scottish Executive had failed to take account of the higher staffing costs in small country schools.

The inquiry, under Professor Gavin McCrone, was set up to end disputes over teachers' pay and conditions.

The McCrone report was completed last year

And when teaching unions accepted the proposals and Holyrood agreed to fund them, it seemed a long-term classroom peace had been brokered.

But alarm bells have started ringing over the costs of the agreement, which came into force in April.

It guarantees a 21.5% pay increase over three years and more staff in Scotland's schools.

Highland Council has said the Scottish Executive's finance plan ignores Gaelic education and the high number of very small schools in the north which cost far more to run.

In the Highlands, where one third of the primary schools have fewer than 30 pupils, the deficit will be �6.5m by 2004 - while Argyll and Bute, Orkney, Shetland and the Western Isles are also facing shortfalls.