The move, announced last week by David Willetts, the universities and science minister, could allow companies such as the publishing giant Pearson to award new qualifications such as "BTEC degrees".
With the cap on tuition fees rising to £9,000 in 2012, ministers have been struggling to find ways to reduce the number of universities setting charges near or at the upper limit, and have even threatened to legislate to ensure that there is a range of fees.
But speaking at a Universities UK conference on 25 February in London, Mr Willetts said the government would prefer to keep fees down by encouraging greater competition.
"We need to keep prices under control but would rather do so through greater transparency, by freeing up student-number controls and by encouraging new entrants. Greater competition is surely preferable to further regulation or funding changes," he said.
The government would "permit organisations to offer external degrees without necessarily teaching themselves - BTEC degrees are on their way", he said.
The minister argued that the combination of local colleges, regional employers and awarding bodies "could be an important embodiment of the Big Society", and that some further education colleges would be able to offer degrees "at less than £6,000".
Ministers also want to develop, as speedily as possible, ways to allow the most popular universities to expand and to give new providers access to student loans and grants.
But Mr Willetts also reiterated warnings that if average tuition fees were too high, the government was likely to impose further cuts on the sector.
If universities charged average fees of £7,500, the teaching grant would fall to £2 billion by 2014-15, he said - a cut of 60 per cent. If the average charges were higher, further reductions would be considered.
Carl Lygo, principal of the private BPP University College, said the proposals on degree-awarding powers were "completely revolutionary" and at odds with the current regime.
BPP had to go through a three-year process to gain its degree-awarding powers.
Mr Lygo sounded a warning: "You can't just open the door to anybody - you've got to have the high standards that are expected in the UK sector. We will all lose out if the door is opened to such an extent that any player regardless of quality can enter."
Nigel Savage, chief executive of the College of Law, another private institution, which is launching a two-year degree in 2012, said that the government should "reinvent the old polytechnics via the private and public sector".
A system that allowed new teaching institutions to award "Quality Assurance Agency degrees" would offer "huge strategic flexibility" while maintaining standards, he argued.
Mr Willetts also announced a delay to the forthcoming higher education White Paper, which he said was "in part to test proposals more thoroughly" and "in part to learn from how price setting works this spring".
On quality assurance, he threw a spanner into the works by suggesting that the sector might develop "a more risk-based approach to QAA review" - an idea that was ruled out in a recent sector-wide consultation on the future of the system.
The government is also examining the possibility of publishing Transparent Approach to Costing data returns on teaching and research, he said.
In addition, Mr Willetts announced that Sir Adrian Smith, director general for knowledge and innovation at the Department for Business, Innovation and Skills, has been asked to reconvene his review panel to examine the issue of postgraduate study, which was largely ignored by the Browne Review.