The revisions will shift funds from MSc courses to Doctorates and new methods of 'knowledge transfer' but wreak havoc with universities that rely on this cash.
Senior Research Investigator at Imperial College, Professor John Burland, said, "It looks like the EPSRC will completely withdraw this funding and as a consequence far less students are coming forward [to study MScs].
"We're basically deskilling ourselves in the UK. There is a substantial reduction in UK students, whilst overseas students get funding from their government [to study in the UK]."
Director of Business Innovation at the EPSRC, Catherine Coates said, "Firstly, we are not cutting out MScs in any way, shape or form. We only fund 10% of all student sponsorship in this field.
"We are funding in two ways: one way is the doctoral training account, which the universities hold and are used to fund preparation for PhDs; the other is knowledge transfer accounts."
'Knowledge transfer' is defined as cutting edge university research, taken-up by business and industry. According to Coates, this is what the employers want to see.
"We're asking universities what sort of tools, techniques, courses etc. are the most effective at getting knowledge transfer to the industrial sector," she said.
However, Imperial's Professor of transport demand, John Polak, strongly disagrees: "There aren't many civil engineering jobs where you need a PhD but you definitely see many employers looking for a middle level of expertise that comes from Masters courses."
The Royal Academy of Engineers also funds a series of engineering MScs. Their head of professional formation, Ian Bowbrick, says MSc courses are essential: "There's such a skills gap out there and there's still a number of employers who don't provide training to skill employees up. We have a number of programmes in order to demonstrate to companies that by upgrading their engineers' skills they have better engineers."
But Coates is adamant: "If the university's view is that taught masters are the most effective way to transfer knowledge then they will get the funding."
Universities will necessarily have to fight to hold on to the funding for their MSc students, as they compete against the more creative, fresher ways of teaching the EPSRC are looking for.
Neither does the new scheme take into account the popularity of the Masters courses and the impracticalities of PhDs for mature students. For example, many people now use MScs as a route to become a chartered engineer.
Professor Burland adds: "MScs are very important in certain areas [of engineering]. There is no question of their success. Some of the top people in top positions did MScs here.
"My own personal view is if we return to the level of studentships before, we would have no skills shortages in the industry."
Burland says that EPSRC makes poor economic sense, with students awarded a minimum of £12,940 for a full-time three-year PhD. In comparison, three MSc students would have completed their courses and be ready to practice in just one year for less money.