The 100 sixth-form colleges should be treated as a separate "brand" and focus on the academic advancement of 16 to 19-year-olds.
"They have a distinctive and clear mission, which is primarily focused on academic achievement and progression, and is well understood and respected by the general public," he said.
Sixth-form college heads had told Sir Andrew, the former head of the Audit Commission, that being treated in the same way as general FE and tertiary colleges put at risk their distinctive ethos.
Just as the Government has said schools should be able to open sixth-forms, there should be no barriers to the setting up of sixth-form colleges, said the report, "Realising the Potential".
"Schools share the responsibility for FE's poor achievement because of the number of pupils who fail," Sir Andrew said.
One in 25 colleges is guilty of "persistent underperformance" and should be given a year to shape up, the report said. If they continue to fail, they should be taken over by other colleges, private providers or the voluntary sector.
Sir Andrew believes colleges are perfectly placed to play a major role in tackling the shortage of skills needed for England to compete in the global economy. He said some of the problems faced by colleges were caused by the Government's inconsistent and often conflicting demands.
"The FE system has suffered from too many initiatives. And there is strategic confusion about roles, especially between the Learning and Skills Council and the Department for Education and Skills. We need less government and a cut in the number of organisations involved in regulation and inspection," he said.
* School sixth forms could lose thousands of pounds if they have high drop-out rates under changes to funding rules announced this week.
Ruth Kelly, the Education Secretary, said at a conference of the Association of Colleges that she would stop the "unfair" system of allowing schools to keep the funding for students who have dropped out. Instead, schools will have to complete a census return several times a year to ensure they only get money for existing students, as happens in FE and sixth-form colleges. The change would cost schools a total of pound;9 million.
Ms Kelly told the conference: "I feel as strongly as you that the gap is both unfair and an obstacle to the kind of integrated 16-19 system that we want to create."
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