The BBC's governors are set to be replaced after 78 years with two new bodies, the government has proposed.
The licence fee was "the fairest way to fund the BBC", Ms Jowell said
The governors, whose dual role as regulator and cheerleader of the BBC has been criticised, would be replaced by a BBC Trust and an executive board.
The proposals were announced by Culture Secretary Tessa Jowell with the publication of a Green Paper into the corporation's future.
The licence fee would be kept for at least another 10 years, she said.
The main plans in the Green Paper are:
- BBC governors to be abolished and a new trust established to "speak up" for the licence fee payer
- Licence fee to remain - but a review will examine other funding methods
- BBC told not to "play copycat" or "chase ratings for ratings sake"
- More programmes to be made by independent companies
The governors' current role was "unsustainable" and lacked "clarity and accountability", Ms Jowell told the House of Commons.
Instead, the BBC Trust would be the voice of the licence fee payer, make sure the corporation fulfilled its obligations and have powers to approve or veto budgets and strategies.
The executive board, headed by director general Mark Thompson, would carry out the BBC's day-to-day management and be accountable to the trust.
Explaining why she favoured keeping the licence fee, Ms Jowell said it retained "a high degree of public support".
"And although not perfect, we believe it remains the fairest way to fund the BBC," she said.
But rapid changes to technology and viewing habits meant the government would review the system of funding during the next decade.
It would also examine whether public money, including licence fee funds, should be given to other broadcasters for public service activities.
The BBC was "one of the two great institutions of British national life" along with the NHS, she said.
HOW LICENCE FEE IS SPENT
Viewers pay £10 per month, which is spent in the following way:
£5 - terrestrial TV
£1 - digital
£1.20 - radio
£1.50 - local TV and radio
£0.30 - Online
£1 - transmission and collection of licence fee
The public will be consulted on the Green Paper, with firmer recommendations set out in a White Paper due to be published in late 2005.
The resulting changes will be brought in with the BBC's next royal charter, setting out the corporation's role, functions and structure, at the start of 2007.
BBC chairman Michael Grade, who will chair the new trust, welcomed the proposals but said it was "regrettable" the BBC's own reforms of the governors had "not had time to prove themselves".
"For the first time in the BBC's history, there is now a clear distinction and appropriate separation between governance and management," he said.
Shadow culture secretary John Whittingdale told the House of Commons the Green Paper's plans did "not go far enough".
He said they were "largely cosmetic changes to the structure and oversight of the BBC".
A White Paper on the BBC's future will be published later this year.
The BBC's first royal charter came into force in 1927 and is renewed every 10 years. The current charter expires on 31 December 2006.