University College London, one of the country's most successful institutions, expects to end the financial year millions of pounds in debt.
The institution told The THES it was facing a deficit, although it said that "its financial position is changing all the time and it would be misleading to state a specific figure".
But members of the academic board say they were told that the deficit was likely to be more than £7 million.
Staff also report that the provost, Chris Llewellyn Smith, has asked departments to make savings of 10 per cent. The university said: "All departments are being encouraged to think about ways in which they can increase income and reduce costs, which, given our financial situation, is merely common sense."
It denied that there was a freeze on new academic appointments, saying:
"Each position is being reviewed on a case-by-case basis, as it becomes vacant."
But one department head said: "The provost is concerned about the current financial position, and is talking about a very strong case having to be made for filling any posts."
Dan Ozarow, education and welfare officer of UCL students' union, who sits on the academic board, said the college had overestimated the number of graduate students it would attract this year, and had also miscalculated the amount it would raise from tuition fees.
But Bill Stephenson, president of UCL Association of University Teachers, was upbeat. He said: "The college is facing a deficit, but we have received assurances that there will be no attempt to deal with this matter by compulsory redundancies. It is a serious position, but it is being addressed."
UCL's financial position has changed over the past two years from a surplus of £12 million in 1998 to a deficit of £200,000 in 2000.
The college is successful at attracting major grants. It has received £45 million from the Joint Infrastructure Fund and £46.4 million from the Science Research Infrastructure Fund. However, under the terms of the SRIF, institutions must provide 25 per cent of the total cost of projects - UCL needs to come up with £15.5 million.
A university spokesman said that the funding would come from "a sustained and organised programme of fundraising".
• South Bank University is facing a funding gap of some £3.7 million and has been told to submit a restructuring plan to the Higher Education Funding Council for England. The gap will be addressed in an action plan to be presented to Hefce by April 6.
South Bank is in a similar situation to that of the University of East London, reported in The THES last week, which has a £2.5 million shortfall. But the university will not divulge whether jobs or courses will be cut.
"The action plan has still to go to the academic board and the governors," said a spokesman.
Lecturers' union Natfhe said it was cooperating with the university on the plan. Regional officer Jenny Golden said: "We want to work with management."