Prime Minister Scott Morrison says extra funding handed to Catholic and independent schools will help students in drought-affected areas.
Extra funding handed to Catholic schools will go toward lowering fees for students in drought-affected areas so they won't have to leave, the prime minister says.
Labor is vowing to fight for state school students to get additional funding, after the government announced a $4.6 billion peace deal with independent schools.
The government is providing Catholic and independent schools $3.2 billion over 10 years to fund changes to the way parents' wealth is measured, based on income tax data.
An extra $1.2 billion will go to "address specific challenges" in those schools, but Scott Morrison rejected suggestions it was a slush fund to get the Catholics off his back politically.
"I think that's a pretty unkind and cynical way to look at it," he told reporters in Sydney on Friday.
"(Right now) it's going to help those Catholic schools to provide fee relief for kids from drought-affected areas so they don't have to leave the school.
"So that sounds like a pretty good reason to do it to me."
The opposition was at first critical of the multi-billion dollar agreement with Catholic and independent schools, but is now claiming credit.
"We've won the money for the Catholic sector, now it's the turn of the state schools to get properly looked after," Mr Shorten told reporters in Gippsland on Friday.
The government was under pressure to provide increased cash for Catholic and independent schools after reducing funding, while Labor campaigned earlier this year on behalf of the sector.
But Mr Shorten dismissed the deal struck by Mr Morrison as a quick fix.
"He's done a patch-up job to keep one group of people happy but he's ignored all the other government school kids," he told ABC radio.
Mr Morrison repeated Education Minister Dan Tehan's comments in parliament that funding for government schools is at record levels.
"We're stepping up when it comes to supporting state schools, we're stepping up when it comes to supporting non-state schools," he said.
Mr Tehan on Thursday said federal funding to public schools was going from $6.8 billion last year to $7.3 billion this year and $7.9 billion the following year.
NSW Liberal Education Minister Rob Stokes is refusing to accept the "unfair" agreement, which his predecessor Adrian Piccoli has derided as a "pathetic" capitulation to the powerful and well-connected.
Mr Stokes , believes the commonwealth is pitting public against private schools.
"Once he fully understands the announcement we made yesterday, I'm sure he'll see the benefits," Mr Morrison said about Mr Stokes.
Victorian Education Minister James Merlino, from Labor, is also concerned about the difference in funding levels.
Finance Minister Mathias Cormann said the federal government does not need the support of the states to increase funding to non-government schools.
The deal brings to a head months of discussions to end a long-running war over the needs-based school funding model.
The National Catholic Education Commission's Ray Collins says it will save faith-based schools from increasing fees or shutting down altogether.