The Government is criticised for "over-centralising and over-politicising" the National Health Service in a study published today by the King's Fund, an influential health think-tank.

The group urged ministers to avoid "over-rapid reform driven by political expediency" and to adopt a new "arm's length" relationship with the NHS by devolving power to local health providers. Lord Haskins, the Labour peer who chaired the study, said: "The NHS is not on the verge of collapse. But it does suffer from excessive political control, too much centralisation of power, and a lack of responsiveness to patients."

Though ministers claim to be dismantling the "command and control" system in place since the founding of the NHS in 1948, the report will be seen as criticism of Labour's "top down" approach. Privately, ministers admit there have been too many initiatives from Whitehall but insist they had to set standards before they could "let go".

The King's Fund wants the Government to go much further, saying: "The whole of the NHS should be freed from political control of its day-to-day workings. Local NHS organisations should be able to manage their assets without interference from the centre."

The report expresses concern that the Government's reforms are being driven by "the dominance of national priorities over local issues" and that "too often, time horizons are shortened to match political rather than healthcare imperatives".

The report warns: "The dynamics of the current system draw the Government into taking responsibility for every dropped bedpan ... The desire of the political centre to direct change is overbearing and prevails over the need to respond to local needs and establish local accountability."

According to the King's Fund, "over-centralisation hinders improvement because it stifles appropriate, locally sensitive innovation, and limits local responsibility."

The fund proposes the creation of an "NHS Corporation", at arm's length from the Government, to oversee standards, local funding and regulation. Health ministers would retain responsibility for overall strategy and funding levels but would no longer be "drawn into excessive involvement in the management of the service".

NHS hospitals could become self-standing "not-for-profit organisations" answerable to the local community. They would have complete control of their assets but remain publicly owned and work to national standards of care.

People would get more choice as health providers competed for patients, but "opportunities for greater choice have to recognise certain limits, given that the NHS has to use its finite resources for the benefit of all".

Rabbi Julia Neuberger, the chief executive of the King's Fund, said: "The Government has said it wants to devolve power within the NHS, and has begun to do this in some cases. It is vital that decentralisation happens across the service, not just in the best NHS trusts, and is protected over the long term."