Sir Ron Dearing's committee of inquiry urges the Government to lift the cap on student numbers on Higher National Diploma and Certificate-level courses now.
The cap on numbers studying for degree courses should also be lifted, although at a later date.
Sir Ron's aim is to bring around 400,000 young people into higher education, raising participation rates to 45 per cent. The current figure is 32 per cent.
In a move which would revolutionise the face of higher education, Sir Ron proposes the lion's share of expansion to be in HNDs and HNCs, not degree courses. And priority should be given to those HNCs and HNDs taught in FE colleges.
But Sir Ron guards against the often-criticised tendency of colleges to move towards higher-level courses, and recommends an immediate cap on degree and postgraduate courses being run in FE.
The report makes a strong economic case for more students in higher education, but argues that strongest demand will be at the sub-degree level, an area in which, Sir Ron argues, FE colleges excel.
There is caution about courses run under franchise deals between colleges and universities, and a recommendation that FE colleges be funded directly for their higher-level work. So-called serial franchising, deals which involve sub-contractors contracting work to a third organisation, should be banned, the report says.
"In many cases, local requirements for sub-degree higher education can be met particularly well by FE colleges, as direct providers," the report says. It can be especially important for students regarded as non-traditional, many of whom need to study near their homes.
"We are keen to see directly-funded sub-degree higher education develop as a special mission for further education colleges. We also see no case for expanding degrees of post-graduate level work in FE colleges.
"This extra discipline to the level of higher education qualifications offered by further and higher education institutions will offer each sector distinctive opportunities and best meet growing individual, local and national needs."
Other proposals are also likely to benefit FE colleges involved in higher education.
The report suggests more money for colleges and universities with a successful track record in widening participation in education.
There is support for partnerships between universities and colleges, but no proposal to merge the Further and Higher Education Funding Councils in England.
Scottish and Northern Irish funding bodies should follow the Welsh model of a merged secretariat.