Without fanfare or ceremony, the most celebrated scientist in the country, Stephen Hawking, quietly stepped down this week from the most prestigious post in British physics.

Hawking's successor as Lucasian professor of mathematics at Cambridge University will be decided by committee this month, but as he moves on, leading physicists warn that Britain risks losing the next generation of great minds.

Government pressure on universities is diverting researchers away from purely intellectual problems and on to sure-fire money-making projects, physicists say. The university's role of pulling in and nurturing deep thinkers will be sidelined in favour of people who can turn profits by making better widgets.

The shift from "blue skies research" to more practical problems will turn gifted students with the potential to be the next Hawking or Sir Isaac Newton off science for good, physicists claim.

The Lucasian chair has been held by some of Britain's finest scientific minds. The tradition began in 1630 with Isaac Barrow, who founded the mathematical tools of calculus. Newton took over in 1669, and was followed by names such as Charles Babbage, the father of the computer, and Paul Dirac, recipient of a Nobel prize awarded for discovering antimatter.

Neil Turok, a leading theoretical physicist who worked with Hawking at Cambridge before leaving for Canada last year, said focusing on industrial applications of science and commercialisation risked ending Britain's history of world-class thinkers.

"Giving up on that tradition of deep intellectual discovery in favour of immediate economic benefit is a huge mistake. You lose the gem of creative, insightful, long-term thinking. That is what Britain has done so spectacularly in the past, and to give that up is a tragedy," Turok said.

The science minister, Lord Drayson, led calls this year for the research budget to be spent on projects most likely to bring money into Britain. The main funding body for physics, the Science and Technology Facilities Council (STFC), is reviewing research it supports with a view to giving priority to projects most likely to benefit the economy.

"The government is putting a lot of emphasis on applied research and that sends a message to young people that they don't value the big questions in science," said Brian Foster, head of particle physics at the University of Oxford. "But it's the big questions that get those people excited and into science in the first place. There is a real danger of killing the goose that lays the golden egg."

In May, an Institute of Physics survey of 800 students found that 90% had been inspired into science because they wanted to do pure knowledge and curiosity-driven work in quantum theory, nuclear physics and astrophysics.

"Most students want to be the next Newton, Dirac or Hawking," Turok said. "They want to think for themselves on really foundational problems. Physicists are paid barely sustenance wages for working their socks off on really hard problems. You can't then go and tell them what they should be working on. You mustn't confine the best minds."

Earlier this week, physicists learned that the STFC will give grants for projects for only one year, not the usual five, and that a £30m black hole in budgets will hit basic research hardest.

"The legacy of great British physicists is at risk. If these cuts go ahead, it will cause carnage inside the major research universities and Oxford is one of them. We will very likely see physics departments close, and the prospect is bound to make good students go elsewhere," said Foster.

Beautiful minds

The Lucasian professorship of mathematics has been held by many of Britain's leading minds.

1669 Sir Isaac Newton, a physicist from Lincolnshire, saw that the physical laws governing the planets are the same that apply to objects on Earth. Before exposing a gravitational force, he transformed the field of optics.

1828 Charles Babbage, born in London, designed the first automatic calculator.

1932 Paul Dirac, a Bristolian born to a Swiss father and Cornish mother, was called the British Einstein. He married quantum theory with relativity, a problem that had perplexed great minds of the 20s, and predicted antimatter.

1979 Stephen Hawking, an Oxford-born physicist, was appointed to the post long before achieving fame with his 1988 book A Brief History of Time. He has also predicted that black holes release radiation.

• This article was amended on 5 October 2009. The original said both Paul Dirac's parents were Swiss. This has been corrected.