Ofcom has recommended that BT's broadband arm Openreach should become a 'distinct company' within the telecoms giant.
The proposals come a week after a scathing report was delivered by MP's which accused BT of underinvesting in Openreach to the tune of potentially hundreds of millions of pounds a year.
The report said the company was failing the its customers and sacrificing providing them with better service for reaping greater profits through "higher-risk, higher-return assets."
The report said BT was "exploiting the position of vertical integration to make strategic decisions that favour the group's priorities and interests, at the expense of its access infrastructure business".
Ofcom has recommended a new business model to be enforced by BT "would provide Openreach with the greatest degree of independence from BT Group that is possible without incurring the costs and disruption - to industry and consumers - associated with separating the companies entirely".
Ofcom said it expects a response from BT by October 4.
The Department for Culture, Media and Sport released a statement in support of the new plans.
"We are clear that a more independent Openreach is needed to benefit consumers and the UK's digital infrastructure," it said
"We are concerned that BT's proposals do not go far enough and think it is right that full structural separation remains an option."
"Swift and clear action is needed to give certainty to consumers, industry and investors in the UK's broadband infrastructure, and which delivers rapid improvements in the level of investment and service."
Ofcom chief executive Sharon White has called the move the "biggest shake-up to Openreach in its 10-year history" and hopes that it will go some way to improving the service for customers.
"It will mean that we have faster, more reliable broadband," she said.
"It will mean that engineers turn up on time, get the job done first time. And I think also, crucially for the UK, it will mean more investment in fast fibre to the doorstep."
