Falkirk Council, which is controlled by the Scottish National Party (SNP), wants to use a not-for-profit scheme.

But the Scottish Executive favours public private partnerships (PPPs) which transfer the risk of projects to the private sector.

The leader of Falkirk Council said a legal challenge could be mounted if ministers do not fund not-for-profit schemes.

If the executive say no at that point then I believe they will find themselves in serious trouble

Falkirk Council leader, David Alexander

The threat of legal action is the latest twist in a long-running row over funding for public services.

Two weeks ago First Minister Jack McConnell put more pressure on SNP run councils opposed to PPP.

He said the executive would keep back cash due to be allocated for improving school buildings in case they changed their minds.

But Falkirk Council wants ministers to release the cash for its favoured scheme of not-for-profit trusts.

The authority's leader, Councillor David Alexander, said: "We believe that we have a model that not only delivers schools but also delivers the type of accountability that private finance scheme can't.

Twin tests

"If the executive say no at that point then I believe they will find themselves in serious trouble with the electorate first and foremost and with audit Scotland."

Deputy Finance Minister Peter Peacock rejected SNP criticism of PPP schemes and insisted the executive was not ruling out other forms of finance.

But he insisted that any proposal would have to meet the twin tests of offering value for money and of transferring investment risk to the private sector.

Peter Peacock: "Huge investment"

Speaking on BBC Radio's Good Morning Scotland programme, he said: "So if they build a duff school, they have to look after it in future, not the public sector."

Mr Peacock said the executive had already supported a trust-type project by Argyll and Bute council, and he denied a non-PPP scheme put forward by Falkirk was being vetoed.

"Falkirk Council have not yet even submitted their proposals. It's a bit rich to say we are refusing to consider it.

"What they ought to be doing is catching up with the rest of Scotland, focusing on what we can deliver through PPP, which is huge investment and huge benefit for children across Scotland."

But SNP shadow finance minister Alasdair Morgan said that despite Mr Peacock's assurance that all schemes would be given a hearing, the dice were loaded in favour of PPP schemes.

"All the impetus is behind PFI-PPP projects," he said.

"You talk to any council that's been asked to submit a bid - it's been made very clear to them that the way to get to success is to put in a PFI bid."