Michael Earley, head of the Rose Bruford College of Theatre and Performance, said performing arts specialists used interviews or auditions to assess talent instead of traditional examination grades, despite recruiting top achievers in their fields.
He said the plans would therefore discriminate against his part of the sector. They would leave institutions with no way to expand under AAB or the separate "price-margin" mechanism to allocate extra places to those with the lowest tuition fees, given that course costs meant drama and music schools had no option but to charge above the ?7,500 threshold.
Professor Earley warned that the results could be "disastrous", with the institutions' numbers whittled down by the government year-on-year to the point where they might be forced to consider leaving the publicly funded system altogether.
"We have raised this with the Department for Business, Innovation and Skills, and I am in the midst of organising a group to try to secure an exemption on numbers," he said.
He added that the AAB proposals - which are subject to a funding council consultation that closes on 2 September - were the latest idea put forward by ministers who did not seem to consider the specialist sector.
"Every single avenue that we see as a hope is getting cut off so it is becoming incredibly hard to see that the public sector will be a viable place to operate in the future," he said.
Professor Earley told Times Higher Education earlier this year that Rose Bruford was considering opting out of the state system owing to funding pressures.
Nicola Dandridge, chief executive of Universities UK, also raised the issue at a debate on the government's White Paper proposals held last month.
"In only allowing expansion at the AAB or equivalent level, or for universities charging less than ?7,500, this has the potential not to allow for expansion among other critically important groups," she said at the Westminster Education Forum event.
"The outstanding performing arts institutions...really are (global leaders) but they recruit on the basis of audition or portfolio, in which case your AAB quota is not strictly relevant. These are very strong universities: they should be allowed to expand just as the more traditional academic institutions should."