We propose a novel scheme to bring reduced density matrix functional theory (RDMFT) into the realm of density functional theory (DFT) that preserves the accurate density functional description at equilibrium, while incorporating accurately static and left-right correlation effects in molecules and keeping the good computational performance of DFT-based schemes. The key ingredient is to relax the requirement that the local potential is the functional derivative of the energy with respect to the density. Instead, we propose to restrict the search for the approximate natural orbitals within a domain where these orbitals are eigenfunctions of a single-particle hamiltonian with a local effective potential. In this way, fractional natural occupation numbers are accommodated into Kohn-Sham equations allowing for the description of molecular dissociation without breaking spin symmetry. Additionally, our scheme provides a natural way to connect an energy eigenvalue spectrum to the approximate natural orbitals and this spectrum is found to represent accurately the ionization potentials of atoms and small molecules.