Staff and students were told of the proposal - made by a joint working group - on Monday and have spent the week working out the implications. A final decision on whether to dissolve both institutions and create a single university with some 28,000 students will not be made until four months of consultations have been completed.
The heads of both institutions are remaining publicly neutral. A joint statement described the proposal as a "bold and imaginative step" whose scale had yet to be fully comprehended.
Behind the plans is John Beacham, the independent chairman of the working group set up to consider ways of achieving a closer relationship between the two universities, which were separated formally in 1994. Dr Beacham, a company director and innovation adviser, said many more universities would need to come together to compete successfully with the world's leading institutions.
"The pace of change is accelerating so fast that universities need to ask themselves how relevant they are now and how relevant will they be in the future," he said. "We want new ways of thinking. Doing nothing is not an option any more if we want to compete with the likes of the Massachusetts Institute of Technology and Stanford University in the United States. The UK does not have many universities that can do that."
The merger is not a desperate effort to compete. The universities would prosper independently, Dr Beacham said, but together they would be able to combine their resources to the advantage of students - whose aspirations are growing all the time - and staff, who are struggling with the increasing costs of world-class research. Wasteful competition would be eliminated, and new combinations of subjects would increase opportunities.
Merging the universities, whose campuses are barely a mile apart in the heart of the city, would create an enormous estate of about 170 hectares and achieve a combined turnover of nearly £500 million.
But Dr Beacham acknowledged that some significant hurdles needed to be overcome to achieve his vision and to prevent the creation of an amorphous and impersonal university. "The biggest challenge will be to change the culture of the staff. We have a long way to go to persuade people, many of whom will be suspicious, that this is rationalisation," he said.
"There will be cost-cutting, but both universities need to increase their external finances. The bigger they are, the more money and top-class people they will attract."
Sir Martin Harris, vice-chancellor of Manchester University, said last year ( THES , March 16 2001) that he favoured a new federal structure to bring the two institutions closer together because he feared any merger would "weaken both sides". But Dr Beacham said his working group had rejected a federal structure because it would increase bureaucracy, reinforce sectional loyalties and achieve only a limited version of the vision.
Lecturers' leaders gave the proposals a cautious welcome. Sally Hunt, assistant general secretary of the Association of University Teachers, said: "Overall, we are supportive but vigilant about the radical nature of the proposals. However, we will strongly resist any compulsory job losses or watering down of working conditions. The universities should not use the merger proposals to mask funding cuts or shield themselves from the forthcoming funding allocations. There now needs to be genuine and honest consultation with staff to review the next steps for merger."
A university spokesman said there were no plans to cut jobs.
A spokesman for the Department for Education and Skills said ministers welcomed the discussions.
Sir Howard Newby, chief executive of the Higher Education Funding Council for England, also expressed support. He said: "We warmly welcome this proposal. By building on the strengths of both institutions, a new organisation can be created to meet more effectively the needs of the knowledge society and compete strongly with leading universities in the UK and the rest of the world."
Other mergers are on the drawing board, although none is on the same scale. London Guildhall and North London universities hope to come together later this year, as do Bradford University and Bradford College. Birmingham and Aston universities have abandoned plans to merge.