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The cap on university tuition fees in England should be scrapped by the government, a think tank has said.
Universities should be able to charge what they like, according to the Adam Smith Institute.
Ministers are "retarding the natural development of higher education" with the current cap, said the free-market institute's James Stanfield.
Lecturers and students have attacked the proposals, saying they would have a negative impact on higher education.
The think tank does not think it is enough to raise the cap, which from next year will be £3,290 per year.
Capping fees artificially increases the demand for places and causes students to value their education less, its report called The Broken University suggests.
It results in less overall investment in higher education and encourages universities to be less responsive to student needs, it argues.
Mr Stanfield said: "There is a lot of talk about the importance of the universities in our new 'knowledge economy'.
"But how effectively can any market work when the government is distorting prices to such an extent?"
The report calls for an end to the taxpayer subsidising universities directly. Instead, it wants funding channelled to students through an expanded student loans programme.
The report also suggests loans should be targeted at students most in need, with loans to wealthier students limited to a set percentage of university fees.
Tom Clougherty, executive director of the Adam Smith Institute, told the BBC it was about recognising the independence of universities.
"Universities should be able to sell their services at what price they think appropriate," he said.
A spokesman for the lecturers' union, the University and College Union (UCU), said: "Hardly groundbreaking or surprising stuff from the brains behind the poll tax, rail privatisation and other policy disasters.
"It is rather disappointing that politicians have not come out and publicly distanced themselves from proposals that would destroy higher education."
The National Union of Students (NUS) also condemned the proposals.
Its President Wes Streeting said: "At a time where students are leaving university with record levels of debt, and graduate job prospects are at an all time low, it is offensive to argue that the cap on fees should be raised at all, let alone lifted entirely.
"The vast majority of the general public is against higher fees. If the cap on fees were scrapped, a disastrous market in higher education would open up, which would see poorer students priced out of more prestigious universities and other students and universities consigned to the 'bargain basement'.
"This would be a disaster for UK higher education and must not be allowed to happen."
Review under way
When variable tuition fees were introduced in England in 2006, the government said there would be no lifting of the cap until after a review of their impact had taken place.
The government-commissioned review into funding is not expected to be finished until after the general election.
Students have been campaigning against any increase in fees.
The Confederation of British Industry is among those who have said students should accept higher tuition fees as "inevitable" and pay more interest on their student loans.
Students in England and Northern Ireland and non-Welsh residents at universities in Wales have to pay tuition fees of as much as £3,225 a year.
Welsh residents studying in Wales pay fees of £1,285 while there are no tuition fees for Scottish students at institutions in Scotland.
Published on the BBC here.