Germany aims to create a university to rival Oxford, Cambridge and Harvard.
The ruling Social Democratic Party admits that not even Germany's oldest university, Heidelberg, can compete at a global level.
Peter Ziegler, education ministry spokesman, said: "Not only do universities such as Harvard, Stanford, Oxford and Cambridge attract the best professors and researchers from across the globe, but they also produce the most Nobel prizewinners - something Germany needs more of to help improve research and bring more money into the country."
The proposal means at least one university will become an elite school.
Edelgard Buhlmann, education minister, said she hoped to create up to ten such institutes by the end of 2010.
Mr Ziegler said: "There are no plans to build a new university. Instead we will transform existing ones by giving them more funding, applying international standards and joining the international system of ranking."
The ministry plans alliances with established German research institutes such as the Max Planck as a way of attracting experts and students.
But Wolfgang Clement, SDP economics minister, said he was sceptical about singling out just one university. He said that German universities had international standing and there was no need to set up an elite school.
Reinhard Buetikofer, leader of the coalition Green Party, said policies should aim to improve all universities and institutions.
Olaf Scholz, SPD general secretary, said that the creation of elite schools would not mean other universities would suffer.
Mr Scholz said every college and university would be improved and would, in turn, see the number of school-leavers entering university increase to up to 40 per cent from the current 35 per cent.
Berlin's Humboldt University has been named as the most likely choice to become the first elite institution as it has produced 29 Nobel prizewinners.
Humboldt economics professor Harald Uhlig, who spent five years teaching at Princeton and Stanford, welcomed the proposal but was concerned about how the plans could be implemented with insufficient numbers of top academics.
"Out of the 500 professors working at the Humboldt University, not even two dozen of them would be good enough to work at Harvard," Professor Uhlig said.