Denmark is to end the centuries-old tradition of a rector appointed by a democratically elected senate.
Rectors and other university leaders will instead be appointed by boards of governors with an external majority. This follows a political agreement between the Liberal-Conservative coalition government, the Social Democrats and the Christian Peoples' Party.
Helge Sander, minister of science, technology and innovation, said external boards would strengthen universities' leadership and would result in closer interchange with the outside world.
"The universities must contribute in the best possible way to growth and welfare in the whole of society. This reform will bring the universities closer to the knowledge society," Mr Sander said.
The new boards must be in place by January 2005. The board will have a chair from outside the universities and its members must represent society, not just the business community, and must have their roots in academia.
Linda Nielsen, rector of Copenhagen University and chair of the Danish Rectors' Conference, said the rectors preferred an equal distribution on the boards and wanted to keep parts of the old system with elected leaders. That possibility was rejected by the agreement.
"But we do get some influence on the composition of the coming boards," she added.
The agreement gives the universities DKr1 billion (£85 million) in 2003-05, partly by removing budget cuts and reallocations totalling DKr800 million, and partly as DKr180 million additional funding.
"We have made a financial agreement for the universities, with a stable and growing economic framework for the coming three years," Mr Sander said.
"Our objective was to give the universities greater freedom to improve their research and courses."
Freedom in research and a commitment to ethics in research are given a strong priority in the agreement, which also ends detailed control of universities and reduces the number of rules applying to them.
"We have met the universities' call for less central control in a number of core areas," he said. "Instead we've put greater emphasis on framework controls," Mr Sander said.
Students are planning to protest against the agreement. Camilla Gregersen, chair of DSF, the joint council of Danish students, said: "Students lose real influence in the study committees, which will be reduced to chat clubs that the leaders can listen to or ignore as they wish. Power will be completely in the hands of the rectors and deans, while our points of view will be in a minority."