Westover Primary School told parents of eight youngsters in reception they would not go up to Year 1 in September as they brought in vertical classes.
The model sees pupils of different ages taught together and is used across many schools in Portsmouth.
Parents were unhappy with the move, the first time it had been brought in at the Westover Road school in Copnor.
Mum-of-two Rachel Knight’s five-year-old daughter Isabelle is affected. The 35-year-old, from Portsmouth, said: ‘It just feels like we’re between a rock and a hard place.’
There were 38 Year R pupils in two classes but that will become one class with 30 youngsters in Year 1, with the eight leftover split between two Year R teachers.
But parents were shocked as during discussions headteacher Anthony Martin resigned his post at the Hamwic Education Trust-run site.
In a joint statement chair of governors John Middleton and trust chief executive Robert Farmer said: ‘I can confirm that Mr Martin has resigned as headteacher of Westover Primary School for personal reasons.
‘These reasons are personal to Mr Martin and therefore we are respecting his privacy and his decision.’
Deputy head Paul Langston is stepping up in the interim and is being helped by Ian Baker, head at Gatcombe Park, another trust-owned school in the city.
The statement added: ‘I can also confirm that no children have been held back and that each child is being taught the appropriate curriculum for their age.’
Conservative councillor Terry Norton, opposition spokesman for education, said he has written to the regional schools commissioner.
He said: ‘These families are now faced with the difficult decision of accepting this segregation or removing their child from the school.’
Cllr Norton added: ‘This is simply not good enough.
‘All children should be afforded the same opportunities, and while their educational needs may be met.
‘I am not convinced that their emotional development will be met by mixing daily with children who have just started school, some of whom could be as much as 18 months younger.’