Some institutions warn that they will suffer serious financial problems and may even close as a result of last month's overhaul, which was intended to clamp down on "bogus" colleges.

There is also growing confusion about how private colleges will achieve accreditation under the regime, which in effect removes government recognition of bodies such as the British Accreditation Council.

Under the new measures, all private colleges must have "highly trusted sponsor" status by April next year and must, by the end of 2012, be accredited by an approved body such as the Quality Assurance Agency or Ofsted.

In the meantime they face a freeze on recruitment, even if they have "highly trusted" status and a long history of recruiting overseas. This will force many to downgrade growth forecasts and expansion plans.

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Aldwyn Cooper, principal of Regent's College, one of the UK's biggest private providers, said his institution, which gained highly trusted status through the BAC, faced a cap on overseas students even though it was applying for degree-awarding powers.

Professor Cooper said: "It could have a staggeringly damaging effect. We will probably lose up to 600 new students that we would have otherwise expected to come here."

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Colleges are also objecting to rules being applied differently to them than to publicly funded institutions, such as a ban on their overseas students working part time.

Sandy Lloyd, principal of The City College in London, said dozens of people were cancelling plans to study in the UK, viewing the country as "closed for business".

He said a group of private institutions was seeking legal advice about challenging the government's policy in the courts. "If the policy remains as it is, I can see 50 per cent of private colleges in London closing," Mr Lloyd warned.

Others said that the damage would eventually filter through to the university sector as students often use private colleges as a stepping stone.

"I think the universities are beginning to wake up to this," said Mark Jones, director of external affairs at the London College of Management Studies.

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Meanwhile, Gina Hobson, chief executive of the BAC, which faces the prospect of becoming redundant as an accreditation body, said the QAA and Ofsted did not seem prepared for the "surprise" that they would be central to the new arrangements.

In a statement, Ofsted says there may need to be "legislative change" before it can inspect colleges that do not receive public funding.

The QAA, which already reviews some private institutions, said it was working to establish how the accreditation system would work.

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A UK Border Agency spokesman said: "We believe we have struck the right balance in ensuring that we have targeted effectively abuse of the immigration system."

simon.baker@tsleducation.com