Gillian Shephard, the Education and Employment Secretary, has expressed outright opposition to a national merger of the funding councils, fearing the loss of key further education services and moves from vocational courses to prestigious academic courses.
She told the recent North of England Education Conference in Gateshead: "Further and higher education have very different roles, very different core functions." She welcomed closer co-operation in the sectors, but said: "This is best looked at locally."
The FEFC will consider at least four merger proposals - in Birmingham, Derby, Staffordshire and Leeds, with eight more likely.
Sir William Stubbs, FEFC chief executive, has already warned colleges against "mission drift".
Senior sources at the Department for Education and Employment told The TES that the financially weakest colleges appeared to be pushing hardest to merge with new universities, themselves facing declining student numbers.
The DFEE questioned whether their motives were what was best for education and training, adding: "We have enough degree students, we need many more with intermediate qualifications. We are concerned about further education colleges aspiring to become universities."
Sources suggested the key FE sector priority should be securing a single voice to speak for colleges. Moves for a merger between the Association for Colleges and the Colleges' Employers' Forum needed to be concluded and other organisations such as the Sixth Form Colleges Association brought on board. A united front would help consolidate the sector's identity and draw minister's attention, said the source.
The HE and FE merger issue surfaced as some proposed links became more concrete. Furthest advanced is a scheme to merge Derby University and five colleges.
Mergers between the University of Central England and East Birmingham College are proposed and three neighbouring colleges have expressed interest. Birmingham has 12 FE colleges in aggressive competition for students.
Leeds Metropolitan University is negotiating with Airedale and Wharfedale College and between Staffordshire University and Newcastle-under-Lyme college.
Mike McConville, principal of Newcastle, said: "The broad range of disciplines would give academic and technical staff opportunities for development not normally open to FE staff."
Legislation paving the way for colleges' incorporation made provision for reorganisation including mergers. Officially, the FEFC is obliged to take a neutral stance when considering such proposals, which must go to consultation and then to the Education and Employment Secretary for a final decision.
A move to set up a working group of the FEFC and the Higher Education Funding Council to discuss mergers is interpreted by some principals as evidence of wariness on the FEFC's part. The council has suggested institutions considering merger should wait until the group issues advice on the criteria for approval.