Cash clawed back through the abolition of the assisted-places scheme will amount to pounds 100m in the next three years, and an extra pounds 160m per year by 2004.
School governors may also be told that they must set class limits below the recommended level in order to ensure that Labour's election pledge is carried out.
Local authorities had pressed ministers to give them a free reign over spending the money saved from abolition of the assisted-places scheme, under which the government pays the fees of pupils attending private schools.
Instead, Stephen Byers, the schools minister, has decided that the councils must submit plans setting out details of how much money they will need and how they plan to spend it.
There had been suggestions that David Blunkett, the Secretary of State for Education and Employment, would take new powers to impose sanctions on councils who spent their class size money on other things. But by "ring- fencing" the money the need for this should be avoided.
However, it is likely that there could be new rules for school governors to back up the pledge. They could be told that even if they have more than 30 applications for each class of five-year-olds, they should keep numbers below that figure. This would allow them scope to take extra pupils who move into an area or who win an appeal against rejection.
But there will be claims that the move will restrict parental choice. At present, schools are often forced by appeals panels to take in extra pupils even though this means they have larger classes.
There had been claims that the abolition of the assisted-places scheme, which will be phased out from this September, would not pay for the reduction in class size because the pupils on the scheme would go back into state schools.
However, it now seems that such pupils can be absorbed into the system without serious effect. Local councils will be forced to pay schools slightly less for each existing state school pupil, but spread across the country the cut will be small.
Meanwhile, class sizes in primary schools are continuing to grow. Figures released last week showed that one in three children under 11 was being taught in a class of 31 or more. The total of 1.3 million was an increase of 85,000 on last year.
Mr Byers condemned the increase and said that it was "a shocking indictment" of the Conservatives' legacy.
"Parents want their children to be taught in smaller classes. All too often large classes become a matter of crowd control rather than a valuable learning experience.
"We cannot and will not stand idly by while our five-, six- and seven- year-olds and their teachers face the daily misery of overcrowded classes," he said.Reuse content