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A Department for Education spokesperson said: "Funding for the Grindon Hall Free School is in place and we expect to sign a funding agreement in time for the school to open in September."
"It is so upsetting and I wish there was something we could do, but we are completely powerless."
Mrs Hodgson said: "It is completely unacceptable that parents should be left in limbo like this.
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"It is a nightmare situation, it really is. It is difficult for us as a school, but that doesn't matter. It is the terrible situation the parents and pupils are in."
She has written to the Secretary of State for Education, Michael Gove MP, to demand an urgent investigation and resolution to the uncertainty, as well as a full explanation of the delay.
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"Whether or not you agree with the policy of free schools, parents deserve to know where their children will be going to school in a few weeks' time so that they can make preparations, including buying uniforms and arranging travel.
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Hall has now broken up for the holidays, so Mr Gray is keeping parents updated via its website.
Grindon Hall was given the go head last year to change from a fee paying private school to a free school in September.
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Mr Gray believes the move will fulfil the original ambitions of the founders to provide an exceptional education with a Christian ethos for as many children as possible.
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The problem is also impacting on all the other school's in the catchment area, with headteachers not knowing how many of their pupils might leave to take up a place at Grindon Hall, leaving them with a shortfall in September.
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Grindon Hall Christian School, in Pennywell, is due to open as one of the region's first free schools in September, but the Department for Education has not yet paid out the funding.
Sunderland pupils in 'nightmare' limbo as school places cash held up
Mr Gray said the school is heavily oversubscribed, so there will be scores of people who have Skechers Flats Shoes applied who won't get a place, but everyone is just left waiting at the moment.
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Washington and Sunderland West MP, Sharon Hodgson, who is also shadow education minister, criticised the government for the situation.
The "nightmare" situation has left hundreds of parents who have applied for their children for one of the 560 places at the school, still waiting to see whether or not their child will be going there in September.
He said class sizes and methods of teaching will remain the same, but places will be allocated on the proximity of families living near the Pennywell school.
"This delay is a complete shambles, and yet more evidence of a department in chaos."
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