The libraries import more than 98 per cent of their books, journals and databases to keep up with international research.
Ms Pharo said that, without proper funding, New Zealand would lag behind the rest of the world.
She said all eight university libraries had made cuts in the past three years, and the country had lost millions of dollars worth of journals.
Canterbury University had cancelled about 1000 journals this year, slashing $1 million or 20 per cent from its journals budget.
Librarian Gail Pattie said the library had also cut another $1 million in the past 10 years."It was a gradual decline at first, but now there is no fat left and we are cutting to the bone."
Victoria University library was rescued with a 25 per cent budget increase this year to make up for a 41 per cent reduction in purchasing power since 1997.
Librarian Alan Smith said the library had had to cut $500,000-worth of journal titles - about 800 - since 1997.
Waikato University had lost 1330 journals since 1998 but had increased its electronic databases.
Association of University Staff (AUS) president Neville Blampied said that without maintaining a knowledge base in the libraries, the universities would struggle to attract and keep good staff.
Mr Blampied said his own psychology department at Canterbury University had cut 40 titles from its 160 subscriptions.
The journals included research on paediatric development, behaviour therapy and alcohol, drug and gambling addictions.
"We have lost key research on some of the biggest social problems that face this country. How can we move forward when we are creating a void of knowledge?
"Libraries are the heart of the university and our knowledge economy. Without urgent funding we will have the knowledge banks of a Third World country."
The Vice-Chancellors Committee wants Tertiary Education Minister Steve Maharey to provide separate funding for libraries.
Committee chairman James McWha, of Massey University, said that internationally, especially Canada and Australia, Governments had recognised libraries' national role in the knowledge economy. "The costs are increasing, but the commitment is not. We are close to the edge."
He said the Australian Vice-Chancellors Committee had offered New Zealand the opportunity to become part of a national electronic database licence, which gives libraries access to the database at a cost of $5 million a year.
Mr Maharey said strong, well-resourced libraries were vital to tertiary institutions.
"Libraries underpin their roles in developing and maintaining skills and knowledge for our society."
Mr Maharey said Teac was due to advise him on what tertiary areas needed direct Government funding.
The role of education and information technology will be discussed next week at the Catching the Knowledge Wave conference in Auckland.
href="http://www.nzherald.co.nz/storydisplay.cfm?reportID=57032">Catching the knowledge wave
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