Problem children sent from all over the country to live in Worthing have priority over youngsters born in the town when it comes to the allocation of school places.
The revelation comes at a time when parents cannot find places in schools near their homes.
This week The Argus revealed some families in the Heene area had been barred from sending their children to the first, second and third schools of their choice because there was no room.
Councillor John Livermore represents Worthing West on West Sussex County Council, which is the education authority. He condemned the policy as perverse.
He said it was outrageous that an already strained situation was being made worse by children's homes which have opened in the town.
There are now up to nine homes which can cater for around 40 youngsters, some with behavioural difficulties, from as far afield as Newcastle, Scotland and south London.
Coun Livermore said: "Children's homes take precedent over local children because the Government says so."
In a letter to Coun Livermore, Helen Moules, the county's pupil admissions manager, said children in care had priority nationally with school admissions.
Parents of 14 children attending Heene First School were angry after being told they cannot send them to the first three schools of their choice.
But after their plight was highlighted in The Argus, a top-level meeting of education officials was called.
Coun Mark Dunn, Cabinet member for education, said: "It does sound rather perverse that people aren't getting their first, second or third choice of schools.
"I want to look into this closely. I do sympathise with those parents and will see if I can do anything to help."
Coun Livermore said it was totally ridiculous that parents from Heene might have to send their children to Downsbrook Middle School, Broadwater, which was on the other side of town.
He warned that, with so many new flats being built on town centre sites to meet Government housing targets, the situation was likely to worsen as more families moved in.
Sarah Palmer, of Thorn Road, whose seven-year-old son Harry is one of those affected, said: "We have made a lot of progress but I cannot say what will happen."
Meanwhile, the catchment of area of Thomas A'Becket Middle School, Tarring, Worthing, may be changed to limit the number of parents, including those from Heene First School, applying.
Children previously eligible for the 800-pupil school, regarded by many as the best in the town, may not be unless they attend Orchards Middle School or Chesswood Middle School.
But one estate agent warned that people falling outside the new catchment area will lose at least £25,000 in the value of their homes.
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