Immigration from European Union countries could be capped at 75,000 under proposals set out by the Home Office for sweeping changes to the relationship with Brussels.
A leaked Government report on the effect on Britain of the EU's policy allowing free movement of people suggests a cap could cut net migration from EU countries by 30,000 from the current 106,000 a year.
The document, seen by The Sunday Times, also suggests blocking EU immigrants from claiming benefits or tax credits for their first five years in the UK.
The paper emerged just weeks before restrictions on the movement of Bulgarian and Romanian citizens are lifted at the end of the month.
The proposals would mean professionals and highly-skilled migrants from countries such as Germany, Holland or Austria could only move to the UK if they had a job offer.
Lower-skilled workers would be allowed to settle if they had jobs on an approved list of occupations for which there was a national shortage.
The leaked open borders review was o verseen by Home Secretary Theresa May as part of the Government's assessment of the balance of powers between the UK and Brussels.
Other proposals in the paper include g iving British citizens a "national preference" by explicitly reserving jobs for them and limiting labour movement from poorer countries joining the EU to the UK until their GDP is 75% of Britain's.
Last week David Cameron said tougher controls on freedom of movement within the EU will be needed in the future and suggested a GDP-based restriction.
The Prime Minister said: "When other countries join the European Union we should be insisting on longer transitions and perhaps even saying until you reach a proper share of an average European Union GDP you can't have freedom of movement.
"The reason for that is if you look at migration between Britain and Germany or France and Germany, countries of pretty even GDP, the movements are pretty much balanced.
"Its only when you have a real imbalance when you have a poor country and a much wealthier country that you get these vast movements."
With the restrictions on Bulgaria and Romania set to expire, Mr Cameron also acknowledged that " an influx of non skilled workers is a major cause of concern".
The proposals were labelled "ridiculous" by the Tories' pro-Europe coalition colleagues.
A senior Liberal Democrat source said: "This surely can only happen by leaving the EU? It seems ridiculous.
"Even the Tories don't think they can renegotiate to that extreme. The amount of British people it would impact would far outweigh the people they're trying to stop, and British business would be crippled.
"We just cannot see how anyone would think this is a good idea, unless their priority is cheap easy headlines.
Any attempt to challenge free movement rules would face resistance in Europe.
European Commissioner Laszlo Andor recently hit out at British politicians' comments about the lifting of restrictions on the two European states, saying on Twitter: " Responsible politicians should avoid legitimising xenophobic reactions that indeed weaken the European spirit."
He also served notice that the UK could be taken to court over existing proposals to tighten the rules on migrants claiming benefits.
Shadow business secretary Chuka Umunna said there was no indication whether proposed Government restrictions on migrants' benefits would be implemented by January when immigration controls for Bulgarians and Romanians are lifted.
Mr Umunna stressed the importance of stopping migrant workers undercutting their British counterparts and suggested the Government should properly enforce the national minimum wage and increase fines on employers who do not pay it.
He also called for a "properly balanced" debate on the issue, saying migration had brought a lot of benefits to Britain.
Mr Umunna told the BBC's Andrew Marr Show: "We were very clear and we raised this issue with the Home Secretary over eight months ago, that you have to have proper transitional controls in place, so what will happen in respect of people coming in from Bulgaria, Romania, wanting to claim out-of-work benefits, housing benefit, Jobseeker's Allowance for example?
"So will that come in and will the restrictions they are talking about come in in January? No indication so far.
"To the extent that people do come in and they can show that they can work and bring economic activity here are appropriate measures being implemented to stop them undercutting British workers, but also to stop them being exploited by employers.
"For example, by ensuring you have proper enforcement of the national minimum wage and increasing the fines 10-fold as we have suggested.
"We haven't seen action on that front by the Government but can I just say and note a word of caution here, we've got to be clear - of course we need a properly managed migration system but equally migration has brought a lot of benefits for our country so let's ensure that we have a properly balanced debate when it comes to talking about these issues."