The proposals, under which up to 1000 communications jobs would be slashed, could also mean the introduction of an annual adspend cap.
In his review, outgoing permanent secretary for government communications Matt Tee recommended the COI be scrapped and replaced by a centralised, 150-strong Government Communication Centre (GCC). Under its aegis, an additional six 'priority theme' teams will be hosted by six departments.
'The themes would represent government priorities, for which there is a clear and important role for communications. A theme may contain campaigns, programmes and contributions from several departments,' the report stated.
Other proposals being considered by Cabinet Office minister Francis Maude include a payment-by-results model for agencies, and the creation of a Government Communication Oversight Panel, made up of three industry experts.
A key recommendation is to make better use of digital channels and 'owned assets' such as government websites, which have an estimated media space value of £50m.
The report made no mention of using the BBC to run government ads, an idea that was floated last year by sources at the Cabinet Office.
Controversial plans for a US-style 'ad council' have been scrapped as neither 'workable, nor desirable'. However, the report proposes the establishment of a 'common-good communications council'. This group of agencies, media owners and voluntary organisations would fund government and charity ads as part of the 'Big society' drive.
The government plans to establish the GCC this year and move marketers from individual departments in 2012/13. However, one well-placed source said departments may push Maude to speed up the process to 'avoid policy drift'.
The source added that the cuts were 'pretty ruthless', saying: 'I don't think that government marketers have processed that this will mean the loss of one in four jobs.'
Despite this, advertiser body ISBA is 'upbeat' about the report. Its public affairs director, Ian Twinn, said: 'Advertisers will be supportive of a Government Communications Centre taking on the functions of the COI along with new roles the government wants to develop.'
IN MY VIEW: EXPERT COMMENT - Laura Bayford, Director, Verdant Consulting
Many core government programmes are about influencing attitudes and behaviour. In most cases this will mean long-term campaigns across a wide range of media, often to mass audiences. This is both time-consuming and complex, and requires high levels of creativity and a range of delivery partners. There should be less reliance on traditional media, but large-scale campaigns need a range of channels - you can't rely solely on the web.