The Welsh Assembly has been urged to close the funding gap between universities in the principality and the rest of the UK or risk causing "long-lasting damage" to the sector.
The warning comes in a letter to a task force on the future of Welsh higher education, from the University and College Union.
The UCU also says that the sector must not lose sight of its core mission of adding to the world's knowledge and understanding rather than focusing on its value to Wales' economy and culture.
An Assembly task force is reviewing the purpose and role of higher education in Wales with a view to updating Reaching Higher, the Assembly's strategy for the sector. A report to the task force said that the funding gap between universities in Wales and England was £61 million, and a report by Universities UK on the effects of devolution last month warned that England was moving further ahead of Scotland and Wales in terms of research income and student numbers.
UCU regional officer Margaret Phelan said: "My personal view is that the Assembly is hoping reconfiguration will streamline things and save costs. Personally I haven't seen any evidence that collaboration leads to savings.
"As a union we will support the reconfiguration agenda so long as changes are managed properly and staff are not made compulsorily redundant."
The UCU is also concerned about the sector becoming too narrow in focus. Its submission says: "The Government must make a very clear statement in any future version of Reaching Higher about the core mission of higher education in Wales; it must not and cannot be solely limited to the contribution of higher education to the Welsh economy and culture."
The core mission is "adding to knowledge and understanding for the benefit of all", it says.
The review, which follows an earlier look at student finance, is due for completion in spring 2009.
Last November, the Assembly revealed plans to scrap the £1,890-a-year grant to all Welsh students who study in Wales.
It proposed that a "significant proportion" of funding be redirected to help students from low-income families from 2010.
The independent review panel that made the recommendation, chaired by Merfyn Jones, vice-chancellor of Bangor University, had said the current system was not the best way to attract more people to Welsh universities.
A consultation on the proposals ends on 16 February.
ONE YEAR AGO
On what was The Times Higher Education Supplement's relaunch as a magazine, called simply Times Higher Education, former editor Gerard Kelly wrote: "What was true (when the publication was established) in 1971 is equally true now - we do not deserve to be a success if we do not reflect the concerns and interests of the community we serve. So our focus will be what it has always been, the guts of higher education - the news, the analyses and the debates.
"Not everyone will like what we have done; change, after all, isn't universally popular. But we have consulted widely and we are proud of the new Times Higher Education ... I hope you find something in these pages of the disputation, serendipity, diversity and originality that make the university community such a rewarding one to serve."
20 Years Ago returns next week.