Departments marked down by external assessors will be given a year to raise standards, said the Quality Assurance Agency (QAA), responsible for monitoring the standard of all British degrees.
Academics will have to draw up action plans - similar to those imposed on schools after inspections - showing how they will raise standards if independent experts feel "significant improvements" can be made.
The change, which echoes government moves to impose a deadline for improvement on schools with "serious weaknesses", was approved last week as part of a package of measures to set a national "bench mark" for the standard of all undergraduate courses.
National standards for all degrees, covering 42 disciplines, will be drawn up over the next two years.
John Randall, the QAA chief executive, insisted that universities had not "dumbed down" but said tighter controls on standards were needed to maintain public confidence in higher education.
"It is a response to a quite genuine public concern that if higher education has expanded to the extent that it has in the last decade, can we really be sure that the standards achieved by students have not been damaged in any way?"
About three departments a year are declared to be in the "could do better" category after assessment by independent academics.
David Triesman, general secretary of the Association of University Teachers, said the scheme was promising, and insisted that lecturers would back tough action against sub-standard courses.
He said: "There are a number of places where students have been short- changed. In most places staff will become sharply involved in raising standards at the first breath of criticism.
"People who have got away with things which are slipshod and have a lot of bums on seats but have not paid the same attention to standards will not be able to get away with it."
Under the scheme, panels of academics will grade every university department for six aspects of its work, including teaching, student performance, equipment and quality control.
Any department given a grade one, indicating "major shortcomings" in one or more areas will face losing their funding if problems are not addressed.
Departments given a grade two, showing there is significant room for improvement in three areas, will have to submit an action plan to the QAA and show how they are raising standards. Mr Randall said the new rules would take immediate effect.Reuse content