The system of education for pupils with special needs in England is "not fit for purpose", MPs have said.
Special needs schools have smaller classes and cost more per pupil
The Commons education select committee is calling for stronger government guidelines for councils, to end a "postcode lottery" of provision.
It also wants ministers to clarify their policy on whether to include special needs children in mainstream schools or educate them separately.
The government said it had "done much" to improve the situation.
According to the committee, those with special educational needs (SEN) are being "sidelined".
It also claims the government's "inclusion" policy - teaching pupils in mainstream schools wherever possible - is causing confusion about whether this means closing special schools.
About 1.53 million children in England are judged to have SEN.
The number of special schools in the state and private sectors fell by 7% from 1,239 in 1997 to 1,148 last year.
The committee says special schools, dealing with issues such as autism, behavioural and learning difficulties, are "invaluable" for many pupils.
It recommends more mainstream and special schools joining in federations to share ideas.
Committee chairman Barry Sheerman said: "Many of the problems identified in our report stem from the fact that SEN provision has not been given sufficient priority by successive governments."
He said standards varied widely.
"There's a high level of satisfaction out there - about 90% - with what parents get."
But it was "a tough, tough world" for the minority of families who had to fight to get a formal statement detailing their child's needs and how they should be met.
His committee's report says local authorities have an "inbuilt conflict of interest", in both having to assess whether a child needs special education - which is expensive - and having to provide it.
The committee argues that mainstream schools' need to do well in league tables means some are unwilling to accept special needs children, for fear of damaging average test results.
It says: "Regardless of the theory, in practice the evidence clearly demonstrates that SEN and the raising achievement agenda sit very uncomfortably together at present."
Responding to the report, schools minister Lord Adonis said "the needs of the child should come first and preference of the parents should be given very great weight".
He said: "There should be no question in any locality of special school provision being withdrawn unless the alternative provision being made - whether it be in units, or resource provision attached to school or investment in the mainstream schools - means that those needs can be properly provided for."
He said the government was "investing hugely" in new schools, including special schools.
The committee's recommendation regarding "postcode lottery" of provision would be considered very seriously, Lord Adonis added.
Tory MP Nadine Dorries, a member of the committee, has written her own minority report, saying her colleagues have failed to "identify in sufficient depth" the difficulties faced.
Children were the "innocent victims of an ideologically-driven and dogmatic view with regard to inclusion", she said.
Shadow Education Secretary David Willetts said: "This is a wake-up call to the government which needs to be heeded."
Liberal Democrat Education spokesman Stephen Williams said: "The government needs to clear up the confusion it has created over what it means by 'inclusion'.
"Parents need clarity about what their child is entitled to."
The National Autistic Society welcomed the committee¿s "hard-hitting and ambitious" report.
It particularly supported the call on the government to end "its confused message on inclusion".
"Autism is a spectrum condition that encompasses a wide range of abilities and needs and whilst some children do well in a mainstream educational setting, others will benefit from a specialist placement," it said.
So local authorities should provide a range of mainstream and specialist provision.
Another charity, Scope, said 60% of parents it had surveyed felt they had no choice of schools.
Director of Education Andy Lusk said: "Many responses illustrated that parents had to fight for the necessary resources in tribunals to obtain the school of their choice - further proof of the battleground between parents and the system in SEN provision."