A national system allowing students, academics and employers to measure and compare degree performance should be in place by the end of the decade, Charles Clarke, the Education Secretary, has said.
Mr Clarke has told university funding chiefs that by 2010 institutions should adopt a national credit framework for measuring student achievement.
He said that this would give a "trans-parent" indication of students' performance and simplify progression from further to higher education.
In a letter to David Young, the chairman of the Higher Education Funding Council for England, Mr Clarke asks for advice about how "rapid progress" could be made towards a new credit framework.
Officials at the Department for Education and Skills said that Mr Clarke's letter did not imply that the credit system would replace the traditional system of degree classifications.
"They can coexist, and indeed already do for a lot of institutions that operate their honours degrees on a credit basis," a DFES spokesman said.
"A credit framework would need to enable flexible progressions routes, within or between institutions and to ensure transparency for learners."
The Education Secretary also asks for more information from Hefce about "variations to the current standard three-year honours degree model" - in particular, e-learning, distance learning and "compressed" two-year honours degrees.
In his letter to Mr Young, Mr Clarke writes: "I know that you are working on all of these, and that they are at different stages of development."
But Mr Clarke's request for advice about setting up a national credit system follows November's report of a government task force, led by Robert Burgess, into measuring and recording student achievement.
Professor Burgess, vice-chancellor of Leicester University, concludes that the 200-year-old system of firsts, upper and lower seconds and third-class degrees is no longer "fit for purpose" and should be "reviewed".
Although the report does not recommend an alternative, Professor Burgess pledges to put forward details of an alternative by December 2005.
But Professor Burgess does suggest that universities need to consider whether a full breakdown of students' performance in all degree modules and units should be used.
Universities UK said that the 2010 target would allow "a considerable time for development".
A UUK spokesman added: "The credit framework will not replace the degree-classification system.
"Options for replacing the degree-classification system will be discussed by the Burgess Group alongside the proposals for a credit framework.
"One of the options is a transcript, and credit gained could form part of this information but other information could also be included."
Ministers commissioned Professor Burgess's report, Measuring and Recording Student Achievement , after the January 2003 White Paper on higher education and amid concerns about grade inflation under the current classification system.
Last year, 55 per cent of graduates received either a first or an upper second, compared with 25 per cent ten years ago.