The government is set to reject key proposals for tough rules on degree-awarding powers drafted by quality watchdogs.

Department for Education and Employment officials are expected to turn down the Quality Assurance Agency's bid to be able to remove degree-awarding powers from "failing" universities and colleges.

They are also likely to reject QAA plans to make institutions apply separately for degree-awarding powers at undergraduate and taught postgraduate level.

Ministers are understood to be reluctant to draft primary legislation that would be required to give the QAA the power to ban an institution from awarding its own degrees and calling itself a university.

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They are believed to be nervous about confrontation with vice-chancellors following the row between former Thames Valley University vice-chancellor Mike Fitzgerald and QAA chief executive John Randall over claims that the agency had tried to assert itself by "making an example" of Thames Valley.

The proposal, put forward in a consultation document circulated in March, will probably be set to one side rather than scrapped. Ministers may wait to add enhanced powers for the QAA on to a future higher education bill, rather than isolating the issue in specially drafted legislation, sources say.

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The DFEE's response to the consultation paper, due this month following soundings from the Scottish Parliament and the National Assembly for Wales, is also expected to suggest shelving the agency's call for two-tier degree-awarding powers.

Under existing arrangements, an institution that makes a successful bid for degree-awarding powers can award degrees up to postgraduate level. The DFEE is understood to be reluctant to agree to the QAA's proposal until the agency has put in place a new qualifications framework for higher education.

The DFEE's decision will be welcomed by higher education college heads, who had complained that the QAA was trying to "close off options" for colleges with ambitions to gain greater independence or go for university status. The QAA's plan would have placed three hurdles in front of institutions aspiring to full university status - degree-awarding powers for first degrees, then taught postgraduate and finally research degrees.

Patricia Ambrose, chief executive of the Standing Conference of Principals, said at least a quarter of SCOP's member institutions were waiting to apply for degree-awarding powers.

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"Our members are not arguing that they should be treated leniently, just that they should be treated fairly. They will be pleased to see the new criteria agreed so that they can get on with deciding whether to bid for degree awarding powers," she said.