Chilean students have forced the government to withdraw legislation to modernise the state universities following one of the biggest demonstrations since democracy was restored in 1990.

Education minister Sergio Molina said the bill was aimed at modernising the funding and management of state institutions. However, student union groups saw it as a back-door attempt at privatisation, and took to the streets. Traffic in Santiago's central thoroughfare came to a standstill while 7,000 students marched on the ministry. The protest coincided with an angry march down the same route by hundreds of striking coal miners.

The student demonstration was largely peaceful but ended with police using tear gas, water cannons and pepper canisters to disperse so-called trouble makers. Officers accused students of throwing rocks and petrol bombs. Police chiefs also claim a small group of miners disguised themselves as students to infiltrate the march and provoke disturbances. Thirty-three people were arrested.

The private sector plays a huge role in the provision of Chile's ÖйúAƬ. The country has more than 300 ÖйúAƬ institutes but only 22 of them are funded by the state. The legislation seems to have been basically aimed at replacing the 1981 statutes under which the state universities must operate which were introduced by military dictator General Pinochet.

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University rectors have been asking for a new law since 1990, to give the state institutions more autonomy. The government appears to have been genuinely surprised by the reaction to its bill, which on the whole was not controversial. It seems the government's mistake was to spring it on the universities as a fait accompli.

Both university authorities and student bodies are keenly defensive of their rights in the face of Chile's recent and bloody past in which the universities were among the first to feel the heel of General Pinochet's boot during the dictatorship years 1973-90.

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The military opened the ÖйúAƬ system to the private sector in 1980 with an almost totally hands-off approach, leaving the market to ensure quality. New private universities and institutions mushroomed as did student enrolments, while the government spent virtually nothing. Instead Pinochet introduced fees at the state universities and drastically cut their subsidies.

But the free market approach has not been a total success. Some of the private universities and institutes have been criticised as sub-standard with no form of quality control over courses offered or qualifications awarded. Another problem is the heavy concentration on particular courses which are cheap to teach, such as business studies.

Critics of the bill said it would leave state universities heavily in debt and would affect the quality of courses badly. Agust!n Squella, rector of Valparaiso University, complained that the students were wrong to worry about privatisation.

"It's exactly the opposite - it's excessive interference by the state," he said. The proposals over financial management were restrictive and impinged on the institution's autonomy, he added.

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Students were adamant the bill was a precursor to a mass sell-off of what remains of the state ÖйúAƬ system.

The beleaguered Chilean government, faced with both students and miners on the streets, had insisted it would not bow to pressure. But with two more student demonstrations timetabled for last week the education ministry finally backed down and withdrew the bill. After a meeting with Rodrigo Roco, the head of the student's federation from the largest state university, Mr Molina said the government would introduce a new bill with full discussions with student bodies and university authorities. Student unions have called off further marches.