TED Baillieu has torpedoed the Gillard government's school reforms, announcing his own plan for education funding amid fears the Commonwealth proposal would leave many Victorian schools significantly worse off.

The federal government has said the states would receive no extra funding if they refuse to sign up to the federal plan, warning Victoria would miss out on $1.2 billion over five years.

But Mr Baillieu has rejected Prime Minister Julia Gillard's proposal, saying there is a better way to improve Victorian schools in line with the needs-based principles of the Gonski review.

Victoria's plan, which would be phased in from next year, centres on extra funding for disadvantaged students. It includes a voucher system where money would follow the student to whatever school they chose to attend, regardless of whether public or private.