The media regulator said in its eagerly awaited review of public service broadcasting in the future: "We reject 'top slicing' the BBC's funding for programmes and services".
Publication of the report has been the source of much speculation and argument in recent weeks, in particular the future of Channel 4 and Five, which are coming under acute financial pressure as advertising revenues plummet and multi-channel competition grows in the run-up to the analogue signal being switched off in 2012.
The report recommends that Channel 4, which faces a £150m funding shortfall, becomes part of a new organisation with a strong public service broadcasting remit.
It suggests this could be achieved by handing Channel 4 a "one-off allocation" from the £130m-a-year BBC licence fee digital switchover surplus to use as funding to take a stake in BBC Worldwide, the corporation's commercial arm, or through a merger with Five or other companies.
The blueprint for public service broadcasting rejects the idea of direct funding for Channel 4 and recommends the broadcaster becomes the heart of "a second organisation alongside the BBC, with a sustainable economic model and with a strong public service role embedded at its core".
It goes on to say that Channel 4 could develop a "deeper and more integrated partnership" with BBC Worldwide or a "partnership with another commercially owned broadcaster, such as Five.
Ofcom said the new body would have a strengthened PSB remit including more increased news and current affairs output, shows for older children and programming sourced outside London.
Channel 4 has already responded favourably to the report. Andy Duncan, the chief executive, said: "Ofcom strongly endorses the value of public service broadcasting, the need for competition with the BBC and the central role of a publicly-owned
"Channel 4 with its 'established track record of delivery', at the heart of a 'financially robust alternative provider of public service content'.
"These are points we have long argued, as is a partnership of Channel 4 with BBC Worldwide, which best meets Ofcom's criteria of strategic logic, scale of synergies and sustainability, as well as serving licence fee payers' interests.
"It would create an exciting new organisation, combining and optimising strong brands, content and distribution, appropriately governed within a competitive system. We look forward to further conversations with the BBC and Government to move this forward so that we, as a country, can move from the words to the actions."
The report also pushes for a new model to deliver local news and outlines the idea of an "independently funded consortia" as ITV restructures its local news offering, which is funded from an annual pot of between £30m and £50m.
ITV will prioritise programmes that audiences value highly, such as peak-time regional news coverage and original UK content.
Ofcom also revealed that the BBC has offered to share its regional news infrastructure and picture access with ITV, something it described as an "important development".
The regulator said it will consider whether this raises editorial or competition issues and whether it would put regional news on a sustainable footing in the long-term.
Ed Richards, Ofcom Chief Executive, said: "The central challenge is how a strong and historically successful public service broadcasting system can navigate from analogue to digital.
"Our proposals aim to sustain the quality and creative spirit of public service broadcasting while capturing the opportunities of broadband distribution, mobility and interactivity.
"These proposals set out what we believe is required to fulfil a vision of diverse, vibrant and engaging public service broadcasting content across a range of digital media."