NASHVILLE (AP) - The state Department of Education announced Tuesday it will withhold $3.4 million from the public school system in Nashville over a rejected charter school application.

The Metro Nashville school board last week defied an order by the state Board of Education to approve the school proposed by Phoenix-based Great Hearts Academies. The fine is the equivalent of one month worth of the school district's administrative costs, or about 1.4 percent of the $236 million the city's school system receives annually under the state funding formula.

"This was not a decision that anybody in the state takes any pleasure in, but we also think that we are a state of laws," Republican Gov. Bill Haslam told reporters.

"We can't just stand back," he said.

Great Hearts had appealed to the state after being denied twice by the city school board over concerns that the charter school planned to draw from affluent white families, rather than to cultivate a more diverse student body. Despite the unanimous order from the state panel and new elections to the city's school board, Great Hearts' application was denied on a 5-4 vote.

About 33 percent of the students in the Nashville school system are white.

Education Commissioner Kevin Huffman said the funding was stripped from Nashville schools because of the board's decision to what he called "brazenly violating the law" that gives ultimate authority on charter school applications to the state panel.

"When a state board decides 'we're just going to violate the law because we feel like it,' that's when we have to take action," he said. "That's what this is about."

The department said the $3.4 million with be withheld from administrative functions to avoid a loss in classroom funding. The money that would have gone to the city will now be redistributed to the other school districts around the state.

Metro Nashville Public Schools issue d a statement that the cuts are likely to directly affect students, as non-classroom expenses include utilities, student transportation and maintenance.

"None of these items are in any way linked to charter school approval processes," according to the statement.

The district, which has no plan yet about how to cope with the cut in funding, noted that 14 charters schools currently operate in Nashville, and that six more have been approved to open by next year.

Great Hearts did not immediately return a message seeking comment.

Haslam had previously said that he wanted to see the current system of charter school authorization stand for a few years before deciding whether the state should take over deciding whether applicants make the grade. The Great Hearts dispute may accelerate those considerations, he said.

"Prior to this I don't think there was a lot of political momentum around it, but we'll have to see how the General Assembly reacts," Haslam said.

House Speaker Beth Harwell, R-Nashville, expressed disappointment in the school board's actions, which ultimately led to Great Hearts abandoning its plans for a school in West Nashville. "We lost," she said.

The governor said he approved Huffman's proposal to withdraw the funds from Nashville. He denied that the decision conflicted with remarks made to the reporters last month that "threatening money, that's not the business we're in."

"What I said was that the state is first and foremost about educating children, and I assumed the metro school board would see things the same way," he said Tuesday.