A radical overhaul of Scottish Enterprise was announced yesterday with major reforms which will strip out the training and local enterprise functions from the agency.
VisitScotland, the tourism agency, is also being asked to fit into the new network of development agencies.
Scottish Enterprise will lose its skills and training division and will be asked to cut its network from 21 local enterprise companies (LECs) to six regional operations.
Scottish Enterprise will have to transfer its small business and local development function to councils and in time will be asked to relocate its staff into council buildings.
Highlands and Islands Enterprise will also lose its training function and will devolve services down to councils but it will gain access to grants and advice schemes such as Business Gateway which previously applied only to the rest of the country.
John Swinney, the Finance Secretary, said of the changes: "They will bring greater integration between our economic bodies, they will enhance business input and they will develop local provision of integrated economic and enterprise development services.
"They strike the right balance in helping Scottish Enterprise and Highlands & Islands Enterprise focus on where they can make the greatest impact and in ensuring the process of economic growth reaches every community in Scotland."
In spite of losing one-third of its operating budget at a stroke with the removal of training responsibilities, Scottish Enterprise welcomed the changes.
Jack Perry, chief executive, said that the organisation would respond with enthusiasm to the challenges set.
He said: "We have been presented with an excellent opportunity to re-energise our organisation, build on our strengths and we face the future with confidence."
Almost 900 people are employed at LECs around the country, with most expected to be transferred to the new geographic entities. Mr Swinney said that the new regional set-up would see five jurisdictions within Scottish Enterprise - Grampian, Tayside, East Central Scotland, South of Scotland and West Central Scotland. Highlands and Islands Enterprise will retain its separate identity.
Responsibility for business support through Business Gateways, as well as local regeneration, will now be transferred to local councils.
Ministers will also sit on a strategic forum with representatives from Scottish Enterprise, HIE and VisitScotland to provide leadership and ensure greater collaboration.
Mr Swinney also confirmed that most skills and training are to be transferred from enterprise networks to a new single skills body.
Business leaders largely welcomed the proposals but Cosla chairman Pat Watters said he was "disappointed" with the announcement.
Iain Gray, Labour's spokesman on enterprise, accused the minister of not going as far as the SNP's manifesto commitments on merging local enterprise bodies.
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