Scotland's Education Secretary Michael Russell has ordered elite universities to admit hundreds more students from the most deprived backgrounds under a £10 million initiative.

For the first time, the Scottish Government is demanding that universities such as St Andrews and Edinburgh use the money to widen access – with those that fail facing fines.

No precise details of the scheme have been published, but it is understood at least 500 students from poorer backgrounds could be targeted with funding of up to £10m earmarked from the overall settlement of £1 billion.

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The move comes just months after The Herald revealed some universities had been recruiting tiny numbers of students from the poorest backgrounds.

St Andrews University – where Prince William studied – recruited only 13 students from the most deprived backgrounds in Scotland in 2010/11.

The second-lowest proportion was at Aberdeen University, with 51, followed by Edinburgh University, with 91.

The Scottish Government has already announced plans to give universities binding targets on access – with the threat of financial penalties for those that fail.

Last night, universities reacted with caution to the scheme, expressing concerns over exactly how it would operate and how students would be selected.

The policy appears to run counter to earlier schemes where money was concentrated on universities such as the West of Scotland that were already doing well in widening access.

There is also a concern the sector was not sufficiently consulted before the announcement was made.

Alastair Sim, director of Universities Scotland, which represents principals, said: "In principle, the provision of extra undergraduate places would be a welcome means to help universities deliver their commitment to widen access. The scale of what can be achieved needs detailed discussion with universities and we look forward to a very early discussion on practicalities."

The move was welcomed by NUS Scotland, which has campaigned for wider access to university.

Robin Parker, the organisation's president, said: "In return for generous public funding, universities need to ensure the greatest public benefit and ensure that they're providing increased opportunities.

"The proposals for extra places to boost access could help to ensure we have a university system which really promotes student potential and boosts access for the most deprived."

The Scottish Government scheme emerged in an annual letter of guidance from Mr Russell to the Scottish Funding Council (SFC), which administers public money for universities.

The letter says that the Government has given Scotland's universities a competitive settlement compared with universities elsewhere in the UK.

"As part of the return for the continuing high level of investment in universities, I want to see universities and the SFC strengthen the efforts they are already making on access," said Mr Russell.

"There is scope within the settlement to expand the number of students that you fund.

"I want to see that growth targeted at widening access, in increasing the ability of those universities with the highest demand to take more students from the most deprived areas in Scotland."

The letter adds that the money should be used to invest in an incentive scheme "to widen access at the most selective institutions through additional targeted places".

The letter also spelled out the sharp contrast between the funding of universities and colleges.

Mr Russell said he expected the further education sector to make savings of £33m over the next two years through a raft of planned mergers that could result in hundreds of job losses.

Some colleges will have to make efficiency savings of up to 6%; similar savings in the university sector are capped at 2%.

Larry Flanagan, general secretary of the Educational Institute of Scotland teaching union, which represents lecturers, said: "The letter of guidance makes clear that the squeeze on further education funding will continue, with further deep cuts in college budgets to come in the years ahead.

"Further education is already suffering due to college funding cuts, with thousands of job losses amongst staff, fewer students studying in colleges, and a narrowing of course provision right across Scotland."

He added: "Continuing to cut college funding still further in the coming years will have a devastating impact for learners of all ages."