A decision to scrap an awards scheme supporting overseas research students will seriously harm universities' ability to attract the best and brightest to Britain, vice-chancellors have said.

Universities UK issued the warning after the Higher Education Funding Council for England announced that it was pulling funding from the ?15 million-a-year Overseas Research Student Awards Scheme (ORSAS), Britain's biggest postgraduate scholarship scheme.

Hefce is to phase out funding from 2009-10, when the grant will be reduced by a third, with a 50 per cent cut the next year and no funding from 2011.

The move follows the Government's recent decision to axe more than ?2 million a year in funding for the Commonwealth scholarships scheme and to reduce funding for the Chevening scholarship programme, both of which support international students.

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The ORSAS receives UK-wide funding of about ?15 million a year, with Hefce's contribution believed to exceed ?10 million, and it supports as many as 600 new students each year.

Hefce said the decision to cut its funding, which at present has not been replicated in Scotland or Wales, was taken "because we consider that ORSAS has achieved its purpose and no longer represents a high priority for public funding".

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It said a recent review found that institutions and students were "highly appreciative" of the scheme, but it was only partly fulfilling its objective of attracting the best students.

"More than half the awards were received by students who had already chosen to study in the UK, and many of the recipients had ORSAS funding as part of a larger package of support put together by the institution from several sources and might not be aware that they were receiving ORSAS funding at all," Hefce says in a letter to institutions.

Diana Warwick, chief executive of UUK, said: "The largest single factor that could undermine the UK's global market share is cost.

"At the very time that the phasing-out of ORSAS will further diminish what we have to offer, the US, a number of other European Union states, and Australia and New Zealand are all developing more attractive funding packages.

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"National scholarship and foundation funding is already limited, so any development that restricts this further is likely to have a significant detrimental impact on our position."

She called on Hefce to rethink its position because the "potential to damage the competitiveness of UK higher education is high."

john.gill@tsleducation.com.