Measures introduced 15 years ago require schools in the city to limit the proportion of pupils from any single ethnic or racial group to a maximum of 45%.

They aim to promote racial diversity in the classroom and prevent the creation of "ghetto schools".

But the policy has left some pupils without access to the best state schools, even though they have high test scores and live in the area.

The city decided to drop the policy in order to settle a lawsuit filed by the parents of three Chinese-American children.

They alleged that San Francisco had barred their children from schools they were entitled to attend because the "quota" of Chinese-American pupils had already been filled.

New poverty measure

Daniel Girard, one of the lawyers for the Chinese-American pupils, said the settlement gave the control of schools back to the population of San Francisco.

"No-one will be told what one of our plaintiffs was told, that they could not attend a school because there are too many Chinese."

Education officials in San Francisco will now focus on measures of economic hardship to allocate places in schools, rather than explicitly focusing on race.

"There's a strong correlation between race and poverty," said a spokesman.

But the change of policy could prove costly for schools in San Francisco, which have received millions of dollars in federal funds as a result of the city's desegregation measures.

Last year, these payments amounted to some $37m, money which teachers say is crucial to keep their classrooms well-equipped and functioning properly.

The settlement comes at a time of increasing judicial hostility to race-based admissions.

Last November, a federal appeals court barred the prestigious Boston Latin School from using race as a deciding factor in the allocation of places to pupils.