Universities must not "claw back" student places that they franchise to colleges to protect their own numbers, the business secretary has warned.
Speaking in Birmingham at the Association of Colleges' annual conference, Vince Cable said he had made it clear to vice-chancellors that "anti-competitive behaviour" was "unacceptable".
Many universities have arrangements under which places are franchised to colleges that offer higher education, but there are fears they could withdraw them in light of uncertainty over student numbers.
Mr Cable said that many college principals had "expressed fears that some universities are revising their validation charges and franchise arrangements".
"I think it would be a very backward step if FE colleges were squeezed out of the market by universities clawing back franchised places," he said. "[They] have a very important role to play in expanding choice and anti-competitive behaviour is simply unacceptable in any event."
The point had been made "very strongly" to vice-chancellors, he added, and the Higher Education Funding Council for England was "looking...at restrictive practices".
Mr Cable congratulated Newcastle College and New College Durham, which in August became the first further education colleges to win foundation degree-awarding powers.
"I encourage other colleges to explore the opportunities," he said.
But he added that some colleges were being "discouraged, if not outright blocked" from offering their own courses by partner universities.
Some at the conference were angry at the prospect of having to "win back" higher education places taken from them to create a "margin" of 20,000 places, to be auctioned off to institutions charging tuition fees of under £7,500 next year.
Hefce originally said that colleges would escape the 9 per cent cut in core allocations to create the 20,000-strong pool, but has now reversed the decision.
Last week, it was revealed that 167 further education colleges had made bids for nearly 20,000 places and 34 universities had bid for around 16,000, meaning margin places are heavily oversubscribed.
Asked if colleges could see their higher education places cut because of the core-and-margin system, Mr Cable said that "overall" their numbers should go up.
"If colleges want to bid for the margin...many of them will be able to have a substantial increase in their numbers," he said.
He added that when he spoke to vice-chancellors, they feared "colleges muscling in" to degree provision on a large scale.