Oxford University could reject state funding if it charges higher fees and can persuade wealthy former students to donate more to fill its coffers, its outgoing vice-chancellor has said.

The move would reduce Government control over the elite institution, giving it greater choice over the students it admits and allowing it to set its own tuition fees.

Dr John Hood, a New Zealand-born former businessman, has been described as Oxford's most unpopular vice-chancellor in living memory for reforms he tried – and failed – to push through shifting control of the university's management from the dons to a coalition of businessmen.

He reiterated his desire for increased privatisation of Oxford in a valedictory interview before the end of his five-year tenure at the helm of the ancient seat of academia.

It follows a campaign he launched last year to raise ￡1.2bn from alumni which he believes is vital to keep Oxford's place among the world's five top universities and attract the same kind of teaching talent that students at leading universities in the US such as Harvard and Princeton benefit from.

"If Oxford is successful over the ensuing decades in its endowment-raising we could see it taking less government money for teaching," he told The Sunday Times.

But he added: "It is more complex than simply saying Oxford should go private."

He pointed out that more than 60 per cent of Princeton's alumni give money to their alma mater annually. When he arrived at Oxford, only five per cent of alumni donated, now it is 14 per cent – meaning its 38 colleges currently have nearly ￡3bn in endowments.

Among the donations Oxford has received recently was a ￡25m endowment from Michael Mortiz, a venture capitalist, to his old college Christ Church.

"The future success of this university depends on their generosity," he said. "We must engender a responsibility to maintain Oxford at the top of the world for generations to come."

Dr Hood has promoted fund-raising tactics such as current students ringing old students to ask for money, and gaudies and garden parties to encourage loyalty.

"At the most successful college, 30 per cent of alumni gave money. They were offered 33 events," he said.

The other vital strand of his plan involves the scrapping of caps on tuition fees imposed by the Government.

He insisted a previous report that he would like to see up to ￡11,000 a year charged for fees was "inaccurate" but conceded that Oxford and Cambridge would end up charging the most of British universities.

"It is inevitable Oxford and Cambridge will end up charging more than the other universities in a free market, though that is a few years away," he said.

Ministers will begin an official review of tuition fees this summer, but given the controversy it will generate – with students and middle-class parents likely to oppose an increase in fees – its results are unlikely to be before the general election, Dr Hood predicted.

The university's Chancellor, Lord Patten, has previously called for the complete removal of the "intolerable" cap on fees to allow Oxbridge to compete with its Ivy League counterparts. Lord Pattern also provoked controversy by suggesting that middle-class parents should be expected to pay higher tuition fees just as they would pay more to send their children to private school.

A Government-commissioned survey by Sir John Chisholm released at the end of last year backed up his comments, saying universities should be free to charge whatever tuition fees they chose to allow them to focus more on teaching rather than meeting research targets for government funding.

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