PA-28 flight instructor on short final reported they took evasive action to avoid a NMAC with another flight school aircraft maneuvering to follow them. The reporter stated incorrect ATC instructions caused the confliction.

Narrative

Instrument student and I were inbound on the practice RNAV XX into ZZZ. We had passed the Final Approach Fix and were descending from 2000 ft. to Minimum Descent Altitude; about 2 miles from the runway. A company Cessna was inbound to ZZZ from the west ahead and lower than us. Tower told the Cessna to do a right 180 and head north bound to follow behind us; which put us on a collision course as we were descending on the RNAV. Cessna turned directly into our path and we got a traffic warning less than on mile. I took controls to cut power and descend rapidly and the Cessna missed us by less than 200 ft.I then told Tower that that was almost a collision for us and that he put that plane right in our path. Tower replied that he had instructions to follow behind us and we were cleared to land number two. If tower had told the Cessna to do a left 360 or left 180 for spacing it would have been no factor; but instructions were a right 180 to follow us when the Cessna was ahead and at a lower altitude it put us on a collision course.