Police must be called to investigate allegations of serious sexual assault at universities and colleges, according to a report released to colleges this week by Secretary of State David Blunkett.

The report, on St Austell College's three-year inquiry into assault allegations against a lecturer, concludes that the attempt to deal with the matter internally was mismanaged and was "contrary to the principles of natural justice". The decision not to turn to the police was "a serious mistake", says the report.

"A thorough investigation would, any reasonable person might conclude, require resources and skills that were simply not available to either the principal or to the members of the governing body," continues the report, which was written by Southampton vice-chancellor Howard Newby for the Department for Education and Employment.

"Only the police, on any consideration of the possibilities, were capable of conducting such an investigation," the report said.

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The allegations were made by a member of St Austell's staff against lecturer and union branch secretary Keith Tregenna in 1993. Mr Tregenna was dismissed after governors heard evidence, but he was later reinstated. The anonymous complainant had lied about her qualifications on her job application and later resigned.

The Newby report finds "serious flaws in process and judgment" by the college principal, Bill Hill, and members of the governing body. Mr Hill, it says, was "adversarial and even partisan" against Mr Tregenna and wrongly acted as "investigator and prosecutor".

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Mr Blunkett, in a letter to Further Education Funding Council chairman Lord Davies of Oldham, said: "I am quite clear that there are important lessons to be learnt from this episode. These lessons extend beyond the FE sector." He insisted that the report be distributed to colleges, in the public interest, and he has asked the FEFC to produce guidance for the sector.

But St Austell's principal remains defiant. Mr Hill, who had challenged the report, which led to its being withheld for more than a year, said this week that the college acted in good faith in deciding to investigate internally. He said that coherent, "blanket" guidelines for how to act in such situations would be almost impossible.

Mr Hill said: "The difficulty of Professor Newby's approach is that it does not cater for circumstances in which the person attacked said that they did not want to go to the police because of the poor percentage of successful prosecutions and the risk of trauma.

"Professor Newby seems to be saying that in cases like this, colleges should back off and do nothing. No college should put itself in that position."

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Mr Hill said that a college could be vulnerable to legal action under employment law if it fails to deal with serious staff complaints.

However, Professor Newby's recommendations reflect those of a report into allegations of rape at King's College, London in 1994. At King's, an internal inquiry that was later dismissed as a "kangaroo court" found an undergraduate student guilty of raping a fellow student. The accused student was later acquitted in the High Court.

At the time, a report from London University vice-chancellor Graham Zellick said that criminal matters should always be a matter for the police and that an institution should not attempt to undertake a criminal investigation on its own even if a victim refuses to go to the police.

A spokesman for the FEFC said that the council is working on guidelines for such situations, which will be published as soon as possible.

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