The joint venture will be supported by £14m a year investment for the next five years from the Department for Trade and Industry, with an additional £16m from private industry.

The government wants universities in Britain to develop the money-making potential of scientific research. And it is intended that Cambridge might benefit from the entrepreneurial success of MIT.

According to research into the impact of the university on the national economy in the United States, MIT graduates have founded 4,000 firms which in 1994 were generating revenues of $232bn.

Attending the launch of the initiative, the Chancellor Gordon Brown said the investment would "lead to the establishment of hundreds of new businesses in the UK".

Students from the two universities will spend time on exchange visits and a jointly-run institute will seek to develop the type of spin-off companies associated with universities in the United States.

'Far-sighted'

"Research universities of the calibre of Cambridge and MIT are substantial engines of economic growth, and these long term strategic global partnerships are the future of higher education." said Cambridge University's vice-chancellor, Sir Alec Broers.

"Universities have the ability to foster and develop ideas, often over a longer time scale than commerce and industry. This mans that our collaboration with MIT at faculty and student level can bring long-term benefits and we can develop major joint research programmes."

The move was welcomed by a number of business leaders, including Chris Gent, the chief executive of Vodafone AirTouch, who commended the DTI's investment.