The Government has been forced into a U-turn after protests over its decision to scrap a major plank of its Commonwealth Scholarship scheme.

About ?2 million of annual funding was axed by the Foreign and Commonwealth Office earlier this year, ending scholarships for masters and PhD students from developed Commonwealth countries such as Canada and Australia.

It was one of several cuts for overseas students, including the removal of ?10 million a year from the Overseas Research Student Award Scheme and a reduction in funding for the Chevening scholarship.

Universities reacted with dismay, arguing that cutting funding would damage the competitiveness of UK higher education and put off potential students at a time when global rivals were increasing their support.

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Now their calls for a rethink have been heeded, with the Department for Innovation, Universities and Skills announcing ?450,000 in funding to bring the scheme back to life.

Although the change of heart has been hailed as a victory for universities, the money available is much less than the amount cut by the FCO, and is for PhD students only, not for masters programmes.

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The scheme will be jointly funded with universities. Several institutions have already indicated a willingness to participate.

Sector sources suggested that the new scheme would support 15 to 20 PhD scholarships each year, compared with 30 to 40 before the cuts.

Scholarships for students from developing Commonwealth countries, which are funded by the Department for International Development, are not affected.

Despite the volte-face, concerns remain that the Government has alienated students and harmed the sector abroad. "The message has got out that the UK isn't interested in them ... so this will have done some damage," one sector expert said.

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It has also been suggested that the U-turn is indicative of the failure of departments to liaise properly over the issue, with DIUS jumping in to pick up the reins after they were dropped by the FCO.

Diana Warwick, chief executive of Universities UK, said: "Many scholarship students go on to be leaders in their fields, retain valuable lifelong links with the UK and act as ambassadors for our universities."

David Lammy, the ºÚÁϳԹÏÍø Minister, said: "I know from experience that these scholarships are important for helping our universities remain competitive in attracting the best international research talent."

john.gill@tsleducation.com

• Times ºÚÁϳԹÏÍø Globalisation of Universities Conference in London, 23 October 2008. For details, please contact clare@createvents.co.uk.