The co-operative, whose members' herds produce about half of the country's raw milk, said it would seek to set up three independent bodies, which would take over Milk Marque's role and assets, be free to market their members' milk and, critically, be able to make higher-value milk products.
Poul Christensen, Milk Marque's chairman, said: "We need to get out from under regulatory control and to develop our business properly."
Following the publication of a Monopolies & Mergers Commission inquiry last July, which accused Milk Marque of abusing its monopolistic position and raising prices, Stephen Byers, the Secretary of State for Trade and Industry, said that any move by Milk Marque to boost production of cheeses, yoghurts and food ingredients "may be expected to operate against the public interest".
Mr Byers rejected the forced break-up of Milk Marque, recommended by the competition inquiry.
The DTI yesterday said it would study the proposals and comment "in due course".
At present, Milk Marque operates two cheese-making plants. Plans to build a major food-ingredients facility were derailed by the summer ban.
Paul Beswick, Milk Marque's managing director, said its members would vote on the proposals next month. The new co-operatives could start negotiating milk-supply contracts in the new year, with first deliveries from 1 April.
Mr Beswick said one body would cover southern England, a second would concentrate on central England and southern Wales, and the third would cover northern Wales and northern England.
In their first year, the three successor co-operatives would rely on Milk Marque to provide central functions, including milk-quality testing.
The Dairy Industries Federation, which says it represents most dairy- product manufacturers, gave the Milk Marque proposal a guarded welcome. The DIF's director-general, Jim Begg, who met with Mr Byers yesterday, said: "We will be concerned to ensure that the anti-competitive practices identified in the commission's report are not repeated in the new arrangements."
Many farmers in England and Wales can choose to sell milk directly to one of the dairy producers, such as Express Dairies or Unigate. But some farmers in isolated areas have no choice but to sell to Milk Marque, which replaced the statutory Milk Marketing Board in the early-1990s.