The Education and Skills Secretary said that she would retain a veto when local authorities applied to build new comprehensive schools. Rebel Labour MPs want her to surrender this power but she said councils should have to "make the case" for a new school "so they do think through what is in the best interests of the children".
Ms Kelly told BBC television that her Bill would mean less selection in schools and contained "a set of proposals that should command the consent of the vast majority of my Labour colleagues".
She won the public backing of Jack Straw, the Foreign Secretary, who set out the "socialist" case for the Government's reforms in a letter to the local authority in his Blackburn constituency. He insisted they would help under-performing areas and social groups. "Bluntly, it is what we should have done decades ago," said Mr Straw. "But the truth is that for all the mythology that previous Labour governments - in the Forties, Sixties and Seventies - were more left-wing that the current post-1997 government, in practice these governments did not deliver as they should have done on education."
Rebel leaders claimed that more than 100 Labour MPs were standing firm against the Bill despite some concessions. They said Mr Blair had "given up" trying to reach a compromise and had decided to rely on the votes of Tory MPs to force through the measure. One government source said: "We are at a fork in the road." Jon Cruddas, the MP for Dagenham and a former Blair aide, warned it would be "dangerous" to rely on the Tories. "There are still substantial issues to be resolved," he told GMTV's Sunday programme.
Mr Blair, who is due to address the weekly meeting of the Parliamentary Labour Party tonight, will plead for the support of his MPs. But the rebels will focus their attack on plans to allow businessmen who sponsor new trust schools to dominate their governing bodies.
The Government is to spend £30m over the next two years to help local councils form federations of schools so that the more successful could share their good practice with those that are struggling.
John Dunford, general secretary of the Association of School and College Leaders, said: "I think there is a major tension in the White Paper between greater autonomy for schools and the promotion of more collaboration. We can see circumstances in which 'trust' school status could strengthen collaboration if there is a 'trust' covering a group of schools."