A secondary school built using private finance will not be expanded because of a cash row between council and business leaders.

The company which runs Peacehaven Community School asked for more than double East Sussex County Council expected the planned expansion would cost.

The Argus understands Peacehaven Schools Ltd (PSL) wanted £7 million to pay for the improvements and to increase the school's size from 750 to 900 pupils, although the bid was reduced to £5 million after 18 months of talks and an independent valuation.

However, the council, which designed the school with the intention of expanding it to take 900 pupils if necessary, estimated the work would cost about £3.25 million.

Council leader Peter Jones said the failure to agree a price for the work demonstrated one of the weaknesses of the controversial private finance initiative (PFI).

He said: "We were caught in a vice because you are tied in for 25 years with one supplier and they have got monopoly power.

"It really is a great disappointment because we really would like to do this."

He said the school would not have been built without the PFI and the Government would not underwrite PSL's estimate for the planned expansion.

Council leaders have to deal with PSL during the 25-year lifetime of the PFI contract and is not able to get an alternative tender.

It was opened in 2001 after people in Peacehaven had been waiting 30 years to have their own school.

A spokesman for PSL said it made considerable effort to meet the design, construction and operating requirements, which included six extensions and other rebuilding.

He said the work could not be carried out within the budget set by the council, which in turn depended on available Government cash support.

"Peacehaven Schools Ltd shares the disappointment felt by the council and the school that the proposed extension and alterations will not be carried out," he said.

The council's education director, Denise Stockoe, will advise Cabinet councillors meeting on Tuesday to abandon the expansion, saying the second, lower, PSL estimate would not represent value for money.

She said the second estimate did not include some features the council considered essential.

Some pupils will be sent to secondary schools in Lewes, Newhaven and Rottingdean from 2004.

Temporary classrooms will need to be built while larger year groups already studying move through the school.