The report, by think tank Policy Exchange, suggests the move would promote technical education while slowing the industry's skills crisis.
The 'Higher, Further, Faster, More' report, funded by the Construction Industry Training Board (CITB) and Wates Construction, states that since the introduction of tuition fees, funding for higher institutions has increased.
There has been a 26% rise in overall income since 2009/10 with universities sitting on £12.3bn of unrestricted reserves, according to the paper.
Overall, the figure is worth approximately 48% of the entire annual budget for the HE sector.
On the other hand, FE has seen a 'significant' drop in its revenue, with the adult skills budget having been cut by 245 since 2009/10.
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According to the National Audit Office, more than 1 in 4 of the entire FE college network could go bankrupt within a year.
The report calls on the Department for Business, Innovation & Skills (BIS) to redirect up to £532m of the Higher Education Funding Council (HEFCE) grant to improve the quality of higher level technical qualification on offer at FE Colleges, National Colleges and Institutes of Technology.
It adds any remaining grant funding in the area should be directed towards universities with the smallest financial reserves.
An expansion of the student loan system is also recommended, along with introducing maintenance support to FE students.
Stephen Beechey, Group Strategy Director and MD of Government Affairs, Wates Group, said: "This latest report from the Policy Exchange, which Wates is pleased to support in order to advance this agenda, further highlights the need for the Government to act on the skills shortage, putting technical education on par with Higher Education.
"We need to equip our country with first rate facilities for this type of education, and give those students as much support in terms of access to finance that is seen in the HE sector.
"Without substantial investment many of the FE colleges will, and in some cases already are, failing to offer the education that the construction industry requires in order to continue to thrive and support the U.K economy.
"We need to invest in people and training to ensure the future labour pool, without doing so, we run the risk of derailing our countries recovery and future success."
(LM/CD)
