The lid is likely to be lifted on the maximum number of students universities and colleges can recruit.
Education secretary Estelle Morris has called on funding chiefs to set interim targets for the sector to ensure that the government meets its target for 50 per cent of young people to experience higher education by 2010.
In her annual letter to the funding council for England, Ms Morris states:
"In doing so, the council will want to consider whether maximum student numbers for each institution are still useful.
"I also expect the council to consider its policy towards institutions that fail to recruit as many students as expected. There may be merit in strategic partnerships or collaborations between institutions."
An attempt last year to tinker with the maximum student number proved ineffective at boosting overall numbers. Sir Brian Fender, then chief executive of the Higher Education Funding Council for England, later said:
"The expansion of higher education can only be partially driven by government: mainly it is driven by the students."
But the government remains optimistic that removing the cap will lead to expansion. Higher education minister Margaret Hodge said: "The cap has been in existence since the mid-1990s and was designed for a period when rapid university growth needed to be controlled. Now growth needs to be encouraged. Were this barrier to be removed, it would allow successful institutions to expand at a faster rate."
Baroness Warwick, chief executive of Universities UK, said that lifting the cap was necessary "in making progress towards the government's 50 per cent target".
The Liberal Democrat higher education spokesman, David Rendel, said: "The government must be clear that if 'Ivy League' universities are allowed to significantly expand, some of the newer institutions - already suffering from lack of demand for places - may well have to close. This initiative will do nothing to improve access to higher education for all."
Tom Wilson, head of the universities department at lecturers' union Natfhe, said: "There is a danger that the proposal to lift the cap on university student numbers will jeopardise the very institutions that are achieving the most in widening participation in higher education.
"Students should not be forced to go to the new universities by restricting access to the old. We are confident that the new-university sector can continue to attract students with its variety of excellent innovative courses, provided the institutions are funded on an equal footing with the old universities."
Ms Morris called on the funding council to minimise dropout rates. She ordered a review of welfare and pastoral services. Institutions are reporting more students with mental health problems.