Mr Gove told MPs yesterday that the new bursary will be targeted strictly at the poorest students.

However, Shane Chowen, Vice-President for FE at the NUS, which had campaigned to reinstate the EMA, labelled the new package as a "shadow" of its predecessor, adding that it was not yet clear if its funding would be taken from careers guidance budgets.

"Almost £400m is still being cut from support to young people and EMA, which has been proven to work by ever measure available, is still being scrapped," warned Mr Chowen.

"Those who will receive automatic payments represent a tiny percentage of those eligible for EMA. The majority of this reduced support fund will be available only on a discretionary basis, which means hundreds of thousands of young people will be applying to sixth forms and colleges not knowing what support they will receive.

"The cost of transport was raised a significant concern by members on all sides of the house and the Secretary of State has failed to address this. At a time when youth unemployment is so high those looking towards further education will be worried that they will be unable to make up the shortfall in funds through part-time work."

Welcoming the announcement as a step in the right direction, Martin Doel, chief executive of the Association of Colleges, said it showed ministers had listened to the sector's concerns.

"We appreciate the intention that our member colleges be entrusted with maximum discretion as to how this money is to be spent and that there will be freedom to use it to fund transport, food and learning materials," said Mr Doel.

However, in its own "lukewarm" welcome of the replacement, Martin Freedman, head of pay, conditions and pensions at the Association of Teachers and Lecturers (ATL), cautioned against allowing schools and colleges to decide which new students should receive the EMA replacement and how much they will receive.

"This is likely to lead to a postcode lottery in bursaries with similar students receiving different amounts depending on which college they attend," said Mr Freedman.

The new funding package will now be subject to an eight week-consultation period.

EMA schemes in Scotland and Wales remain in place, but the allowances are under review in Northern Ireland.

Susannah Fairbairn