The National Council for Education and Training in Wales will be restructured amid an escalating row over "irregular expenditure" that cost taxpayers £2.2 million.
Welsh Assembly education minister Jane Davidson said the council, which has a £500 million budget for post-16 education and training, will be streamlined in the light of lessons learnt from an assembly audit report on flawed contracts that contravened Welsh and European procurement rules.
The council would have a smaller but more skilled staff, and it would focus only on core business until system checks were completed in the autumn, Ms Davidson said.
The audit committee's findings, published last month, put Ms Davidson under fire from opposition assembly members last week.
Tory education spokesman David Davies called the assembly's handling of the council's affairs "a shambles", and Plaid Cymru education spokeswoman Helen Mary Jones demanded a "proper investigation".
The report said a £4 million council payment to media company Avanti had breached accounting rules. The money was intended to provide young people with multimedia training at the "Pop Factory" project, a music venue that has attracted stars including Victoria Beckham. But the money was paid upfront, and there was little monitoring of how it was spent.
This, together with other weaknesses in organisational and financial arrangements in the council's first 12 months, had resulted in the loss of £2.2 million.
Ms Davidson told the assembly that she accepted that there were important lessons to be learnt from the report.
She welcomed the auditor-general's conclusion that the council's procurement breaches were "acts of omission rather than commission" and that fraud was not suspected.