Ministers are stopping supplies of coronavirus tests to universities in England, in the first case of ending the mass distribution of free lateral flow testing kits before dropping all remaining Covid restrictions.

Universities are currently advised that students and staff on campus should take lateral flow tests (LFTs) twice a week, even if they do not have coronavirus symptoms. But the contract to supply the kits, through NHS test and trace and the UK Health Security Agency, will be terminated on Friday and not renewed.

The cabinet is said to be split over Covid strategy and the future of testing, with the Treasury pushing to end mass testing as a cost-saving measure, while the health secretary, Sajid Javid, wants to retain some free testing to aid community surveillance of the virus.

A government spokesperson said: “No decisions have been made on the provision of free testing. Everyone can continue to get free tests, including university students and staff who can order from the government website or their local pharmacy.”

Higher education leaders were informed of the surprise decision only on Wednesday. Universities also appear to have been told they cannot distribute any remaining stocks of LFTs past the end of this week.

Alistair Jarvis, the chief executive of Universities UK, which represents vice-chancellors and college leaders, said: “The ending of the legal agreement which allows universities to hand out lateral flow testing kits to students and staff ahead of the confirmation that all remaining Covid restrictions in England is hard to understand.

“We are asking government for urgent clarification that universities can continue to distribute test kits from the supplies they have on campus. This makes sense when universities have kits which would otherwise go to waste and while there is still demand from students and staff this term.”

Jo Grady, the general secretary of the University and College Union, accused the government of “playing fast and loose” with the safety of staff and students on campus, and said the decision could jeopardise in-person teaching.

“This approach is reckless and may lead to Covid outbreaks being undetected until it is far too late to limit infections. It is also completely irresponsible for the government to make this change at such short notice,” Grady said.

“Ministers must explain how employers are supposed to ensure campuses remain safe when testing is a key health and safety control measure. They must also commit to not abandoning free PCR testing for symptomatic cases. University staff and students need these reassurances urgently.”

The government spokesperson said: “We continue to encourage people to use rapid tests when they need them.”

The Guardian revealed this week that the Treasury was seeking to cut the budget for coronavirus provisions by up to 90%, including an end to distributing LFTs for asymptomatic testing from March.