Student grants should be doubled to £2,000, although the government is also keen to waive fees, higher education minister Alan Johnson said this week.
He told politicians and students gathered at the London School of Economics on Tuesday that he favoured £2,000 maintenance grants "like they have in Scotland".
He also said that the initial introduction of upfront fees in 1997 under a Labour government had been "a mistake".
On Monday, education secretary Charles Clarke told journalists that between 30 and 35 per cent of students would pay no fees under the proposals being developed by the government.
Under present plans, the government will continue to pay the first £1,100 of fees for students from lower income families. From 2004, it will reintroduce an annual grant of up to £1,000 for students from lower income families; around a third of students are expected to benefit. But this could still leave the poorest students, who are faced with paying the full £3,000, about £900 short.
Mr Clarke now wants universities to use the money generated from increased tuition fees of up to £3,000 to waive the outstanding amount for the poorest students.
Elaborating on Mr Clarke's comments, Mr Johnson said: "We are going to look at closing the gap. If the fee is £2,000 or less, then [some] students will be better off. If not, we are looking to seal that gap. If we take that through bursaries, and make it a regulation that [universities] have to [close the gap] through bursaries, I don't see a problem with that."
A Department for Education and Skills spokesman said: "In an ideal world, we would want a bigger grant. But we live in a real world where we have a set budget and we have to live within that constraint. We are looking at the student-support package. The Commons education select committee has called for bigger grants and our response said it would look at that."
Another speaker, former academic and Labour MP for Selly Oak, Lynne Jones, said she supported the Liberal Democrat policy on higher education. "I would rather pay higher taxation than my sons' university fees," she said.
The event was organised by the LSE students' union in anticipation of Sunday's National Union of Students demonstration against top-up fees to be held in central London.
Mandy Telford, NUS president, said: "We need a higher education system that doesn't discriminate against any student."