A report commissioned by the Australian government calls for university closures, the scrapping of hundreds of existing courses and for research to be conducted only in a few specialist universities.
Vice-chancellors, their staff and students have condemned the proposals - the latest in a series since federal education minister Brendan Nelson launched a review earlier this year. They said every university should be able to conduct research - otherwise it would not be a university.
Students in several cities held protest marches and sit-ins at ministerial offices. Perth police used batons and pepper spray to subdue students during a visit by Dr Nelson on July 25.
The Australian Vice-Chancellors' Committee said the government should not fall back into the dark days of a segregated, binary, higher education system of research universities and teaching colleges.
AVCC president Deryck Schreuder said the capacity to develop critical and reflective thinking was dependent on links between scholarship and research with teaching and learning.
None of the four documents, released as part of a wholesale review of the system, has called for increased federal funding and each has outlined possible changes that have provoked strong criticism.
The first overview paper, Education at the Crossroads , described plans to deregulate universities and increase tuition fees.
The second paper covered learning, teaching and scholarship, pictured academics as rigid and inefficient and proposed a system of teaching-only universities.
The third focused on finances and set down ways fees might be deregulated through vouchers or allowing universities to fix their own charges.
Before he initiated the review, Dr Nelson told vice-chancellors there would be no increase ingovernment spending without substantial reform.
He said ways had to be found for universities to collaborate and reduce unnecessary duplication. Australia's 39 public universities offered more than 20,500 subject units that enrolled five or fewer students, while 4,000 had only one student.
"We need to ask ourselves, with A$6.4 billion (£2.2 billion) of public funding going to universities this year, are we targeting those resources to where society most wants them?" Dr Nelson said.
"For example, business and management is offered at all universities, while every New South Wales university offers accounting, marketing, law, and communication and media studies. It should be clear to anybody that this is not a recipe for efficiency, educationally or financially," he added.
The latest discussion paper says no single institution is in a position to meet all the higher education needs of a community, particularly in a country the size of Australia with a dispersed population.
It argues that there is considerable potential for greater diversity through "strategic specialisation and differentiation" with some institutions specialising in particular courses.
"There is a hybrid form of the undergraduate-only institution that may be in the early stages of development in the sector," the paper says. "This university would offer a range of undergraduate courses, some postgraduate coursework courses, but only a narrow selection of postgraduate research degrees."
The document suggests establishing a central body, convened by the states, territories and Commonwealth, to facilitate the rationalisation of courses.
But vice-chancellors said the paper failed to recognise the diversity that already existed. They said that this would only continue to flourish through an effective financing framework that actively rewarded different missions.