Oxford University has announced plans to reduce the intake of British students and increase the number of high fee-paying overseas students to improve its finances.

The university is likely to reduce its number of British students by 1,000 over the next five years. It should replace them with extra overseas undergraduates, who pay full fees of up to 20,000 pounds a year, according to a strategy paper.

The university said the extra money would allow it to pay staff more and improve standards. The strategy paper warns: "The competitiveness of Oxford in the longer term is contingent on much greater financial security and autonomy.

"The fact that the university has retained its position amongst the world's elite is remarkable when viewed against the backdrop of chronic under-funding."

It adds that Oxford's attempts to recruit from overseas have been "very limited" compared to rivals. The university is also hiring extra staff to encourage former students to make financial donations.

Currently, these amount to between 70 million and 80 million pounds, compared with the 262 million pounds Harvard raises.

The strategy paper is being put out for consultation within the university before final proposals are drawn up in the summer. Oxford has already announced it will introduce bursaries worth up to 13,000 pounds for students from low-income families.

It said these would make it the "most affordable place" in Britain for talented, but less well-off students. Speaking at a conference last year, Michael Beloff, president of Trinity College, Oxford, said the university might have to be privatised to ensure its financial survival.