The title of the new foundation degree has been called into question because it breaks European qualification rules in the Bologna declaration.
Universities and colleges will be forced to make it clear to students and employers that the foundation degree is "not a real degree" if they are to avoid contravening the rules, government officials said this week.
Some 56 consortia of universities, colleges and employers had bid for funding to pilot the qualification by last week's deadline. Between ten and 20 consortia will receive extra student places to deliver the courses.
While applicants included members of the Russell Group - the University of Southampton has bid through the University of Southampton New College - there were no bids from the research elite - Oxford and Cambridge universities, University College London and Imperial College.
Britain has been a leading force in the efforts to standardise higher education qualifications across Europe through the Bologna declaration, which was signed last year by 30 ministers of state, including Britain's higher education minister Baroness Blackstone.
The declaration states that in order to develop a Europe-wide system of "easily readable and comparable degrees", all degree qualifications should involve a minimum of three years' full-time study. The foundation degree in its full-time version takes only two years.
This week, Derek Pollard, chairman of the Council of Validating Universities, which represents 85 universities and 50 further education colleges, warned that the issue needed to be addressed before the declaration is taken forward at a meeting in Prague on November 14.
He said it would be "inadvisable" to ignore the declaration on the grounds that the foundation degree targets a local market.
"The Europeans consider all Europe to be the local market, and one of the Bologna objectives is mobility, so it would be even worse to restrict the foundation to UK participants," he said.
A Department for Education and Employment spokesman said the Bologna declaration did not specifically refer to the foundation degree, but "allows it to happen as long as institutions make it clear that it falls below honours degree level".
The issue will further irritate colleges that offer two-year qualifications such as higher national diplomas but lack degree-awarding powers.