The Welsh Assembly Government is to overhaul the way it spends its £450 million annual budget for higher education.
The strategy, announced last week by Jane Hutt, Minister for Education, includes plans to spend more on maximising participation in higher education by creating more part-time and credit-based courses.
Funding will be targeted more carefully to eliminate local competition and "eradicate wasteful duplication of provision", and more money will be spent on strategic priorities such as strengthening links between universities and businesses.
National priorities for research funding were also announced, including digital and low-carbon economies, health and biosciences, and advanced engineering and manufacturing.
In addition, more courses will be taught in Welsh, and student funding will be addressed by a new national bursary framework, which will be unveiled in spring 2010.
Provision of foundation degrees will also expand, the strategy indicates, with further education colleges granted awarding powers.
The plans follow a warning in June by Merfyn Jones, vice-chancellor of Bangor University, who said Wales had to act to ensure it kept up with its international rivals.
Introducing the strategy, Ms Hutt said she intended to create "a system that is fit to meet the needs of Wales in the 21st century".
The Higher Education Funding Council for Wales will draw up a spending plan to deliver the strategy by next spring.
Meanwhile, the Scottish Funding Council has been asked to abandon or delay an overhaul of its system for allocating teaching funding until it can prove that the data on which the plans are based are robust.
The proposed system divides subjects into four "price" groups, meaning some disciplines may face major funding cuts. But the plans were drawn up using data on teaching costs from just one academic year. Responding to an SFC consultation, which closes this week, groups including University and College Union Scotland and Universities Scotland called for a rethink.
The UCU said: "We believe that better statistical analysis is required to prove the case that four subject groups is correct."
An SFC spokesman said it would begin its analysis of the responses when the consultation closes on 4 December.