Mr Lammy says universities are likely to collaborate more
Higher education minister David Lammy has warned universities to expect years of reduced funding.
In an article for the Policy Review magazine, Mr Lammy said universities should be looking for their own sources of income.
They should not rely on a current review of student tuition fees to shore up their funding, he added.
Last week Lord Mandelson said tighter budgets could spur universities to diversifying their funding.
In December the government in England revealed it would be making extra cuts of £135m to universities, on top of the £600m announced in the pre-budget report and £180m in efficiency savings.
Mr Lammy wrote in the Policy Review it would be "a good few years" before universities could expect to see any really significant upturn in their income from the public purse.
University vice chancellors should "find ways of relying less on the taxpayer as a hedge against any future tightening of the public purse-strings".
But he suggested the implications of the cuts had been exaggerated.
"Anyone who has followed recent media coverage of university funding could be forgiven for thinking that the Four Horsemen of the Apocalypse had been spotted galloping down Whitehall in search of anyone in a mortar board," he wrote.
However, he admitted some universities were already struggling to sustain the traditional model of providing teaching and research
"Those problems may intensify in the years to come. So I expect to see more specialisation in some institutions.
"That may affect the range of subjects that some offer, or how they organise their research - I certainly expect to see some institutions collaborating to form larger and more powerful research groups - or indeed how they arrange their teaching," he said.
Some universities may concentrate mainly on off-campus teaching, either in workplaces or online, Mr Lammy believes, while many more students may take part-time courses.
Shadow Universities Secretary David Willetts set out the Conservatives' plans for the sector in the same journal.
The party also wants more people to study part-time and pledges to give them a "fairer deal" in terms of government grants and loans.
The Conservatives say they would create 10,000 extra university places in 2010 and offer graduates a bonus if they pay back their loans ahead of schedule.
The Liberal Democrats have said they would phase out tuition fees over six years.