The Australian Government is proposing to award the university title to institutions that neither undertake research nor award research degrees.
Brendan Nelson, the Education Minister, last week released a discussion paper on diversity that sets out reasons for changing the current set of protocols governing the establishment of universities.
Dr Nelson previously argued for more diversity in the higher education sector, suggesting that some universities could focus only on teaching while others might concentrate solely on research.
The protocols were agreed by state and federal education ministers in 2000 after the establishment of Greenwich University, a private US institution that was set up on Norfolk Island, a self-governing Australian territory in the South Pacific, and began marketing its courses in Australia.
The protocols currently require that universities teach a range of disciplines and that research be a major part of their mission.
Dr Nelson said developments in Australia and overseas posed significant challenges to the single model of an Australian university prescribed in the protocols. "It is important that we consider whether Australia can continue to expect a one-size-fits-all model of higher education to compete with the world's best, cater to regional communities and offer excellence in both teaching and research."
A national seminar is being held in May to consider the paper.
Jenny Macklin, the Opposition spokeswoman on education, said the announcement was "a threat to water down the definition of a university".