Potter, the author of Pennies from Heaven and The Singing Detective shown on the BBC said 'bitterness and hatred' had demoralised staff.
'The world has turned upside down,' he said. 'The BBC is under governors who seem incapable of performing the public trust that is invested in them, under a chairman who seems to believe he is heading a private fiefdom, and under a chief executive (Director-General, John Birt) who must somehow or other have swallowed whole and unsalted the kind of humbug- punctuated pre-privatisation manual which is being forced on British Rail or British Coal.'
However, while Potter's broadside will set much of the agenda for this weekend's festival, it is unlikely that Mr Birt, who will speak today, will be much damaged by it.
Potter's attacks last night were from time to time thrown out of focus as he described Mr Birt as the 'so often so unfairly abused Director-General'.
He said that there were 'legions of troubled and embittered employees at the BBC who can scarcely understand any of the concepts of the new management culture'.
But he was quick to add: 'I will willingly concede that this is partly because they do not want to listen, and there have long been people at the BBC ready to spout about their dedication to public service broadcasting, who think it is an absolute impertinence if they are asked to get out of their beds of a morning.'
He added that back in 1965, far from being a golden age, 'there was a bureaucrat in every cupboard and smugness waiting with a practised simper on the far side of every door'.
Delivering the James MacTaggart lecture at St Cuthbert's church, Potter, whose last series Lipstick on Your Collar was broadcast on Channel 4, said it was time to save 'not the BBC from itself, but public service broadcasting from the BBC'.
He said: 'Why not separate radio from television? Why not let BBC 2 be a separate public service broadcaster?' He added: 'Channel 4, if free from its advertisements, could continue to evolve out of its original, even precious remit, into a passably good model of the kinds of television some of us seek. Michael Grade (chief executive of Channel 4) is becoming by default the new director-general.'
Of Mr Birt and the chairman of governors, Marmaduke Hussey, it was 'impossible not to wonder how on earth those currently and, I hope, temporarily in charge of the BBC could have brought such things to such a miserably demeaning condition'. He said that 'you cannot make a pair of croak-voiced Daleks appear benevolent even if you dress one of them in an Armani suit and call the other Marmaduke'.
Last night Will Wyatt, managing director of BBC Network Television, said that the world of broadcasting had changed and the BBC had to change with it. Change could be painful and 'in that respect we all share Dennis Potter's concerns'.