The health department could transfer the billions currently spent on nursing education to the Higher Education Funding Council for England, increasing the funding council's budget by about 15 per cent.
The move could signal the end of national workforce planning for nursing and other health professions, with implications for university planning.
A paper is circulating among senior civil servants within the Department of Health setting out a series of options.
Malcolm McVicar, vice-chancellor of the University of Central Lancashire, which receives 15 per cent of its funding through the DH, said: "I have certainly been at meetings where a transfer of funds has been discussed.
"The DH has always fiercely resisted the idea, but there may be movement as there is so little joy in the current situation."
But this proposal raised concerns in some institutions.
Professor McVicar said: "A transfer of funds would raise questions about the future of workforce planning. It has clearly not worked. It may be better to adopt the system used for medics and let the market decide."
Pam Tatlow, chief executive of Campaigning for Mainstream Universities, said: "Some universities have real concerns about this proposal.
"The current arrangements are clearly unsatisfactory but many fear the end of organisational planning and the transfer of insufficient funds to Hefce.
"It is not clear how student progression, future workforce needs of the health service and higher education institutions' course provision could be strategically planned and provided."
Health Secretary Patricia Hewitt did not rule out transferring the cash to Hefce when she was questioned before the Health Select Committee last year.
And last month, the Health Committee joined the chorus of voices criticising the National Health Service for tackling its deficits by slashing the amount spent on the training of staff. It described the practice as "unacceptable".
Drummond Bone, president of Universities UK, wrote to Bill Rammell, the Higher Education Minister, last September warning him that if the cuts continued, nursing and allied health professions education may no longer be viable at a number of universities.
* Academic posts and training programmes will be created as part of a £20 million boost to public health research announced this week.
Institutions will bid for one of five centres of excellence, which will each receive up to £5 million over five years as part of the initiative, designed to tackle health problems such as smoking and obesity.