The rankings are based on 13 performance indicators ranging from teaching and research to international outlook. The California Institute of Technology retained the top position from last year. Harvard University rose from fourth spot to second, which it shared with the University of Oxford. Japan was the best-performing university nation in Asia, with five institutes in the top 200. The US took out seven of the top 10 places while the UK had 31 universities in first 200. Times Higher Education rankings editor Phil Baty said Australia had "fallen back to earth with a bump" this year in the table.

"It has lost a top 200 institution with the University of Adelaide slipping out of contention, leaving seven representatives in the list," he said. Mr Baty said the results were alarming because the $2.3 billion cuts to the university sector, announced by the federal Labor government before the election, were yet to be fully felt. "And the victory last month of conservative Tony Abbott as prime minister does not suggest that research funding will be high on the national agenda." Melbourne University vice-chancellor Glyn Davis said Australia's overall reputation as a university nation may have declined since last year. "I think this is volatility based on academic reputation, which is based on international perceptions of Australia's higher education system," he said. "If it turns out to be a long-term trend of decline I think that would be very disturbing but on one year's data you can't know. It is a very volatile index. It has bounced around before."

The latest rankings come after federal Education Minister Christopher Pyne flagged a review of the recent policy that allows universities to enrol as many students as they can accommodate. b.preiss@theage.com.au