Ministers have been warned of a potential “brain drain” of researchers away from smaller universities and a further concentration of talent in London and the south-east if they go ahead with a major funding reform.

Universities UK has been told that it will need to make a “robust case” in favour of the current system, which ensures that academic researchers working in unfashionable areas of study at less celebrated institutions are eligible for taxpayers’ money.

Under the “dual support” system, universities are given cash to spend as they wish, known as quality-related funding. At the same time the research councils fund major research projects undertaken according to national strategic goals.

The Observer has learned that the Department for Business, Innovation and Skills is looking at concentrating all funding in the hands of the research councils, in a move that would probably see an end to research funding in areas such as ancient Greek, according to one vice-chancellor.

Critics of the move believe the winners would be the major science and technology research centres, such as Oxford, Cambridge, Imperial College and King’s College London, while new universities would lose out. The universities in the so-called “golden triangle” of the south-east dominated the top end of the research excellence framework published last week as a guide to where the best ground-breaking research is being undertaken.

Liam Byrne, the shadow universities minister, said that would accelerate a trend towards expertise accumulating in the south-east. Sectors such as hi-tech manufacturing, IT, life sciences, telecoms and professional services grew by almost 225,000 jobs between 2009 and 2013 in London and the south-east. That accounted for 85% of the jobs created in these high-skilled sectors, according to figures produced by the House of Commons library.

Four regions of Britain saw the number of “knowledge economy” jobs fall – in the north-east, 21,500 jobs were lost, while jobs also disappeared in the West Midlands, the south-west and Scotland.

Byrne said: “We need our universities to become powerhouses of the knowledge economy all over Britain, not just in London and the south-east. So we’ve got to take incredible care we do nothing to strip out what’s left of research departments in Britain’s regions. Regional research bases need to be bigger, not smaller.”

Universities UK confirmed that at a board meeting this month they were told institutions should now be “prepared to make a robust case in support of quality-related (QR) funding”.

Professor Geoff Rodgers, vice-chancellor of Brunel university, said: “The research council money is more strategic, about national priorities, and the QR money sustains the base. It can support ancient Greek while also allowing investment in new areas.

“It allows you to move into chemical engineering if you want to. It is regarded as the system that has left UK science in the strong position that it is in. There is a question mark in the background, a discussion going about whether we really need the dual-support system and whether the QR money is under threat. I know that officials have been arguing with ministers about the importance of the dual-support system. We think that a change would diminish the research base in the UK.

“I think the important thing is that it would mean that a narrow range of topics would be funded and it would make it very difficult to maintain the level of research we need across the piece in order to be successful as a nation,” added Rodgers.

“Right now, for example, there might be very few sociologists who are funded to research into food distribution, which is very important subject because of concerns over security of our food supply chains. It may be that there aren’t any research council funded-projects in that area, so what we need is a base of research-active sociologists who are looking at these subjects.

“There is a danger that if you allow funding to be project-led, then some areas would have no projects and we would be left with nothing to say in certain areas. We would lose the resilience that we have now.”