The action is being taken by Bradford Council against Bradford and Ilkley Community College, which claims the amount is “substantially” less. Similar legal clashes have ocurred since colleges became independent of local education authorities in 1993.

Tony Kilner, solicitor for the council, compared the dispute to a messy divorce. “We have been talking about this for months and have taken legal action as a last resort, although we hope it can be settled without a court hearing,” he said.

The college, which has 35,000 students, admits it owes money. Alan Hodgson, director of administration, said: “We told the council two years ago that we owed it money. The council has suddenly woken up to it, and has attempted to calculate what is owed in a way that is not accurate or appropriate.”

The college refused to give its estimate of the sum owed, in advance of a likely court case, or what the impact on courses and jobs would be were it to lose the case.

“The figure is substantially less, and our response will be lodged within eight weeks,” Mr Hodgson said. “But we hope too that this whole thing can be settled before it reaches court, and we will continue to have talks with the council.”

Among other cases which have led to legal action, Birmingham City Council won a claim for Pounds 1.6m against Birmingham College of Food, Tourism and Creative Studies. The college is to appeal to the House of Lords with a counter-claim for an alleged unpaid Pounds 7m European funding.

Four other Birmingham colleges are also in dispute, including East Birmingham and South Birmingham colleges, which are said to owe around Pounds 1m each, North Birmingham (Pounds 500,000), and Sutton Coldfield (Pounds 250,000). Halton College in Cheshire last month lost its fight to claim money it said was owed by the county council.