The Privy Council has rejected Bolton Institute's application to call itself a university, despite an exemplary record of quality assurance and widening participation.
The Standing Conference of Principals has suggested there are political motives behind the decision. Bolton principal Mollie Temple said this week that she and her governors were outraged and called on the government to think again.
She accused the Quality Assurance Agency, which advises the Privy Council on university titles, of ignoring its own teaching quality inspection reports and making an unsound judgement. She said the QAA was wrong, but was unaccountable.
Ms Temple said that the Privy Council's decision was based on an 18-month-old QAA report. Agency inspectors found good quality teaching at Bolton, which has degree-awarding powers, but raised questions over its ability to maintain high quality.
"We disagreed with the QAA then and we have already been proved right," she said. Of the five subject areas inspected by the QAA in the past year, four were given the maximum 24 marks out of 24 and the fifth received 21 marks.
In the past eight subject reviews, Bolton has been given top marks for "quality management and enhancement". It also leads the social inclusion agenda, emerging at the top of widening participation tables.
Patricia Ambrose, chief executive of Scop, said the institute appeared to have met all the criteria for earning the title university. "If they don't want more universities, they should say so."
A QAA spokeswoman said: "The agency offered its advice against criteria for university title that are necessarily rigorous. Not every aspirant institution will be able to meet the criteria. But setting high standards helps to safeguard the standing and reputation of United Kingdom universities."
• Liverpool Hope University College has failed in its appeal to keep the word "university" in its title. The college, which has its degrees accredited by Liverpool University, fell foul of rules imposed in February 1999 to clamp down on the unofficial use of the name.
Liverpool Hope argued in court that the ban was introduced with so little notice that the college had no time to demonstrate its worthiness of the title to the Privy Council. But three judges said that Hope had not been unfairly or disproportionately treated.