Welsh universities and colleges have been presented with a choice of two systems to make research funding more selective.
Resources for postgraduate research will focus on areas rated at 3 or above in the most recent Research Assessment Exercise, says a circular from the Higher Education Funding Council for Wales.
But institutions have been asked to decide whether they would prefer this to be applied through the current funding system, or through a new one which would represent "a significant departure from current arrangements".
The first option would mean continuing support for postgraduate research through both the teaching and research funding systems, with teaching money providing funded student places and research money used to maintain the research environment. The funding council distributes Pounds 4.2 million through the teaching element and Pounds 5.9 million through research in this way.
This system means that institutions with a low average unit of council funding would be awarded more postgraduate research places through the teaching funding methodology.
Under the second option this would not happen since all resources for postgraduate research would be channelled through the research funding system.
Institutions have been given until October 14 to respond, and the council is expected to make its final decision by next January.