Investment in further and higher education will be boosted by a joint funding body, according to Lifelong
Learning Minister Jim Wallace.
Universities have been reassured after talks
Mr Wallace said a combined funding body will make the best use of money given to universities and colleges.
Higher education will get £1bn by 2008 and further education will benefit to the tune of £620m, the minister said.
However, the minister faced students' claims that he was trying to "sneak-in" top-up fees.
He denied the allegations, insisting new measures would only be used to ensure Scots are not disadvantaged by an influx of students from England.
The minister argued that the Scottish Executive remained opposed to the introduction of top-up tuition fees.
Mr Wallace said: "We have a strong track record in investment in higher and further education."
The Further and Higher Education (Scotland) Bill is being placed before Holyrood to merge the funding bodies for Scotland's colleges and universities.
The universities at first feared that the proposals for the new Further and Higher Education Funding Council would leave them with less money.
But they are now in favour of the move after receiving reassurances during talks with the Scottish Executive.
The proposals would make it easier for students to switch between university and college.
The new body is also designed to encourage collaboration between Scotland's 14 universities and 46 colleges.
The universities were initially worried that their standing and their research funds would be diluted.
However, they have secured changes to the bill.
A 30% increase in funding for higher and further education was announced in Wednesday's Scottish budget.
Scotland's universities are to receive an extra £100m in each of the next three years.
Mr Wallace said combining the two quangos would ensure value for money.
"It will make it easier for students to move from one sector to another, encourage collaboration and make funding decisions more transparent," he said.
"We know that world class research and teaching is vital to economic growth, and our decision to invest further significant sums in higher and further education reflects this."
The minister added: "This was a clear and deliberate decision by ministers to grow our economy through investing in people and their skills. The new funding body will further strengthen the link between our economic goals and post-school education.
"In addition, by merging two quangos we can provide a better, more efficient service for universities and colleges, who in turn, can focus their energies on developing excellence and access to lifelong learning".
But students' union leaders said they have been betrayed by a measure which they claim allows ministers to increase fees.
Members of the National Union of Students (NUS) have opposed a clause in the bill which would allow ministers to increase fee levels for non-Scots UK students in individual courses to control demand for places from outside Scotland.
NUS Scotland President Melanie Ward said: "Students in Scotland have waited a long time for this merger and are appalled that this has been used as an opportunity to sneak in top-up fees.
"We have received repeated assurances from the executive that top-up fees were not an option in Scotland, but this legislation opens the door to their creeping introduction without further primary legislation."
In June, Mr Wallace signalled that non-Scots UK students in Scottish universities who now pay an annual flat fee of £1,125, face large increases in 2006 when top-up fees are levied south of the border.