The Federal Government has moved to allow universities to set their own fees without tying the change to a 20 per cent cut in federal funding, splitting the legislation that had appeared doomed to fail a second time.

Education Minister Christopher Pyne has also backed down on his threat to withdraw $150 million for research unless the Senate passed the higher education package.

The dramatic change in tactics will break an apparent deadlock in negotiations with the eight crossbench senators — most of whom have opposed the package.

Mr Pyne said he wanted the deregulation of the university sector to “stand and fall on its own merit” without the $1.1 billion budget cut to course fees.

“So two debates can be held — one on the Government’s deregulation agenda, which we see as having extraordinary benefits for students and universities,” he said.

“And we’ll have a separate debate around the Government’s reduction of the Commonwealth grant scheme to gain savings.”

The deregulation bill faced heavy opposition, after it failed to win the six votes required on the split crossbench of eight senators.

Mr Pyne had hoped to have a vote on the bill this Wednesday, but the Government’s already fraught relationship with the Upper House has worsened with crossbench senators accusing it of holding scientists’ jobs to ransom.

He earlier said research jobs were at risk if the higher education reforms bill did not pass the Senate.

“There are consequences for not voting for this reform and that’s very important for the crossbenchers to understand,” the minister told ABC’s Insiders program.

“The consequences are that potentially 1,700 researchers will lose their jobs.”

The comments were condemned by a number of crossbenchers, including independent senator Nick Xenophon, who said Mr Pyne was “holding 1,700 scientists hostage” to the policy.

Newly independent senator Glenn Lazarus labelled it “blackmail”.