The warning comes after six councils were found to have been misled into paying hundreds of thousands of pounds to place children with complex mental and physical health needs in an unregistered school.
The use by the councils of the illegal school, Frieston Hall in Lincolnshire, led to an Ofsted investigation and the conviction of three of people under the Education and Skills Act 2008 for conducting an unregistered, independent school.
"This case should also serve as a warning to local authorities," said Ofsted chief inspector Amanda Spielman.
"Decisions about placements must be made with due diligence. All local authorities should be carrying out the necessary checks to make certain that schools are registered with the Department for Education."
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