Bowing to new state regulations, the city is releasing a plan to reduce class size in the public schools that would spend $106 million to hire at least 1,300 new teachers and create 400 new classrooms next year.

The projected drop in class size — to 0.8 students a class in grades four through eight, 0.6 in high school, and 0.3 in kindergarten through third grade — may not be enough to satisfy activists, who are already gearing up to challenge the proposal.

The money is part of an unprecedented $700 million surge in state funding arriving after 14 years of litigation by the Campaign for Fiscal Equity last year resulted in a mandate requiring more state funds in dozens of districts, including all of New York City.

Following an accountability plan created by Governor Spitzer, the city and other districts receiving extra money have to submit proposals to the state, known as Contracts for Excellence, to show they will spend on five specific policy goals.

In addition to its class-size efforts, the draft released by the city late yesterday budgets $57 million for extended-day programs; nearly $44 million for professional development for teachers and principals, and nearly $13 million for restructuring middle and high schools, which includes closing failing schools and opening new ones.

The city schools chancellor, Joel Klein, has argued that improving teacher quality should take precedence over reducing class size. But the latter issue got the biggest boost in part because of principals, who elected to spend more than $66 million of $133 million dispensed directly to them on class size. The remaining $95 million in Contract for Excellence funds will be spent on citywide programs.

Several groups that have advocated lower class sizes yesterday criticized the city plan as far too modest. The executive director of a nonprofit, Class Size Matters, Leonie Haimson, called the goals in the city plan “so minimal as to be meaningless.” She also questioned which schools would receive funds, citing data showing that nearly 50% of city schools on the state failing list received no Contract for Excellence money directly in their budgets.

The president of the teachers union, Randi Weingarten, was also skeptical that class size would drop as a result of the plan.

A series of hearings held throughout the five boroughs will solicit public feedback on the plan before the city sends a final proposal later this month.

A lead lawyer for the Campaign for Fiscal Equity, Michael Rebell, praised some of the proposed programs but challenged the amount of state funds that is subject to the contracts. “It looks like a lot of this is getting eaten up by maintaining the current level of services,” Mr. Rebell said.

New York City’s proposed contract covers $228 million of its $700 million share; the rest of the funds are not regulated by Mr. Spitzer’s plan.