The introduction of top-up fees threatens to widen the funding gap for teaching between further and higher education to "indefensible" levels, college heads have claimed.
They also argue that universities should not receive extra government funds if this means neglecting the financial needs of further education - as colleges will play a central role in delivering government initiatives to improve skills in the workforce and widen participation in higher education.
Julian Gravatt, director of funding and development at the Association of Colleges, said that without a significant cash injection colleges could be forced to double fees for mature and employer-sponsored students on some courses, or to close courses.
"This disparity in funding means that colleges are teaching the skills of the future in inadequate buildings with equipment that is unsuitable for the 1960s, let alone the 21st century. We will lose increasing numbers of lecturers to business, schools and universities," he said.
"The e-revolution will pass us by. The jobs for which students can't be trained will drain away to other parts of Europe."
An analysis by the AoC suggests that from 2006 the difference in funding per student between the two sectors will increase once again, having narrowed each year for the previous seven.
By 2007, higher education is expected to be receiving about £1,500 more per full-time student than further education, the greatest difference than in any year since 1998.
The disparity in funding between the two sectors could become even greater if universities get anything approaching their bid for an extra £9 billion in the coming spending review. By comparison, colleges have asked for an extra £1.9 billion over three years.
Even though growing numbers of colleges are entering partnerships with universities, particularly those delivering foundation degrees, many further education heads think it unlikely their institutions will get a share of the extra resources raised through top-ups.
Michael Thrower, principal of Northbrook College and chairman of the Mixed Economy Group of colleges, said: "The only way the funding gap will close is if colleges start to charge top-up fees. But many will be reluctant or feel unable to do so.
"An increasing funding gap between the sectors will not do anything to help raise or maintain standards in further education."
David Robertson, head of education policy at Liverpool John Moores University, believes there should be a government review comparing further education with higher education funding.
He said: "As things stand, I don't think further education will benefit from the introduction of top-ups, even where they are running foundation degrees. The universities will see it as their cash."
The AoC's submission to the government spending review says colleges need at least an extra £1.9 billion to 2008 if the sector is to meet the targets it has been set.
About a third of colleges are believed to be in deficit, the association says, leaving many unable to meet the costs of a nationally agreed programme for modernising pay and some having to make redundancies. The removal next year of a funding guarantee that benefits 200 colleges will mean a significant number facing further cuts.
The AoC says more than £500 million could be saved to offset the extra spending by cutting back on the government's "Success for All" programme, which rewards colleges that hit targets and penalises those that do not.
Colleges may also need to increase fees, initially by about 10 per cent, although in some cases they could double. Colleges already generate £250 million a year in fee income.
The paper says: "The whole sector has every interest in increasing this figure. Where fees can be raised from employers and individuals, they should by raised."