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The Government has been warned that UK universities are experiencing "unprecedented" financial strain, with "no clearly understood protocol" for dealing with their collapse. MPs were told that 24 institutions across the UK had been identified as at risk of financial failure within the next 12 months in November.

The absence of a framework for dealing with the fallout of such eventualities raised alarm bells in Parliament, with members of the Education Select Committee arguing that an unmanaged collapse could have "devastating consequences". It comes after universities in UK cities including Edinburgh, Bradford and Lancaster were forced to enact cost-cutting measures including making redundancies, closing courses and selling assets to make ends meet.

Responding to a report by the Office for Students (OfS) highlighting the lack of mitigation for worst case scenarios, MPs called for the creation of an early warning system, including plans to protect students and staff, and legislation clarifying how a university might continue to function after collapse.

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Helen Hayes, MP for Dulwich and West Norwood, who chairs the committee, described the prospect of a major university becoming insolvent as "a real possibility, not a theoretical warning".

She added that ministers and regulators should intervene "when the lights are turning amber, not when they are already flashing red."

Vivienne Stern, chief executive of Universities UK, the sector's main representative body, said the dire situation was the result of primary funding for institutions shifting from the state onto graduates.

She told The Times that while she welcomed Labour's increase of tuition fees in line with inflation, the move followed a "steady withdrawal of financial support for the cost of upfront teaching".

"[The] next step is to reverse that long-term decline in the public investment in teaching," she said. "[Ministers should] stop raiding the higher education budget to balance out costs elsewhere."

State teaching funding per head has dropped from £7,720 to £2,480 since 2012/13.

Alongside the 24 universities at risk of "market exit" within 12 months, a further 26 could collapse into insolvency within the next two to three years, the OfS warned.

The University and College Union (UCU) also accused the Government of being "asleep at the wheel" as universities face a "financial cliff edge".

Meanwhile, Alex Stanley, vice president of the National Union of Students (NUS), told the BBC the report was "scary reading" and that "students should not be bearing the brunt of the lack of investment in hgiher education".

The Department for Education (DfE) said it had "taken action to put the sector on a secure financial footing" by raising the cap in tuition fees and directing the OfS to support institutions' financial stability.

A spokesperson added: "Through our ambitious reforms announced in the post-16 education and skills white paper we will restore universities as engines of growth, aspiration and opportunity."