University exam results should be supplemented with more detailed information about students' achievements, says a report.
A pilot study will show students' results in greater detail
But an inquiry conducted by university leaders says it has not found any better degree classification system.
So grades such as first class, 2:1 and 2:2 will continue alongside a pilot scheme giving more detailed exam marks.
This will give employers more "fine grain" information about graduates' abilities, says their report.
The inquiry team, chaired by Professor Bob Burgess of Leicester University, has been considering how to improve the system of showing students' achievements.
An initial inquiry report, in 2004, argued that the current system was "no longer fit for purpose".
And there have been concerns that the broad brush of the present grades - in which almost 60% of students receive a first or 2:1 - fails to distinguish between candidates.
Their concluding report still argues that the "degree classification system needs updating".
But it proposes retaining the current grades - on the basis that there is no evidence of an acceptable alternative.
"Would it make good sense to take the classifications away? I doubt it," said Prof Burgess - who says his committee considered many other systems used worldwide but failed to find any likely to be adopted in the UK.
"The way forward is building upon the current classification system and augmenting it."
The inquiry rejected ideas such as introducing more grades within the 2:1 band; having a simplified system of pass, fail and distinction, or using a specific percentage mark.
Instead, it proposes piloting a parallel system - to be called a Higher Education Achievement Report (Hear) - which would provide a detailed breakdown of marks in exam papers and course modules.
This would run alongside the existing grades, at first for a sample of students, with the possibility of a national roll-out from 2010-11.
Such a transcript would give employers more precise information about strengths and weaknesses than a single classification, says Prof Burgess.
The report - Beyond the Honours Degree Classification - says the current classifications could eventually be replaced by a more detailed record.
"We intend that the existing degree classification system will decline in importance until it should no longer be considered necessary," says the report.
But Prof Burgess made it clear that there was no imminent likelihood of the 200-year-old system being removed.
"You could say that the report is aspirational - but how many years it could take to reach the aspiration is less clear," he said.
Degree grading has already survived the Dearing Report into higher education, which concluded in 1997 that the "honours classification system has outlived its usefulness".
The proportion of students awarded firsts and 2:1s has risen steadily since the 1980s - with warnings that some graduate employers are rejecting the minority who achieve only a 2:2, a grade that once would have been the most common outcome.
A report from the Quality Assurance Agency has also argued that the grading system lacks the transparency necessary to compare degrees from different institutions.
The Burgess report will be considered by university leaders and, if adopted, any future decision on degree grades will be taken after the piloting of the Hear.
England's Higher Education Minister, Bill Rammell, welcomed the proposal to provide additional exam information.
"However, I wish to be clear that I believe progress can best be made by building on the current system, and certainly not by replacing degree classifications," said Mr Rammell.
But the National Union of Students said it was "disappointed that the pace and scale of the proposed reforms have been frustrated by some sections of the higher education sector".
Mike Harris, head of education and skills policy at the Institute of Directors, said many employers would welcome receiving greater detail on students' achievements.
"However, the determination ultimately to replace the current system remains clear.
"This would be a mistake. Whilst not flawless, it is well understood by employers and is an important recruiting aid."