Employers have hit back over Government calls to take on more British workers, saying that too often they lacked the right skills and the right attitude for the jobs on offer.
Lawyers meanwhile warned that firms could face claims for racial discrimination if they favoured British candidates over foreigners who were entitled to work in the UK.
The row broke after Work and Pensions Secretary Iain Duncan Smith used a keynote speech in Madrid to appeal to firms to "give our young people a chance" rather than just handing jobs to foreign immigrants.
The director general of the British Chambers of Commerce, David Frost, said employers were taking on foreign workers because they were better qualified and had a stronger work ethic than young British jobs applicants.
"They expect young people to come forward to them who are able to read, to write, to be able to communicate and have a strong work ethic," he said. "Too often that is not the case and there is a stream of highly able Eastern European migrants who are able to fill those jobs. They are skilled, they speak good English and, more importantly, they want to work."
Neil Carberry, the CBI director for employment policy, said firms wanted to give young people an opportunity, but they had to pick the right candidate for the job.
"Tackling unemployment is a challenge for everyone, and businesses want to give young British people a chance," he said.
"Employers should choose the best person for the job. The challenge is to ensure that more young Britons are in a position to be the best candidate. The Government's focus should be on boosting private sector growth, which will deliver more job opportunities, and reforming our welfare and skills systems to make sure our young people are ready for work."
In his speech to the Foundation for Social Studies and Analysis think-tank in the Spanish capital, Mr Duncan Smith blamed the "slack attitude" of the former Labour government to immigration for the increasing proportion of jobs taken by overseas workers.
He said that Government and business needed to work together to ensure the immigration system "works in the interests of Britain" and the unemployed are given a "level playing field" to compete for jobs. In the short term, controlling immigration is critical or we will risk losing another generation to dependency and hopelessness. But Government cannot do it all," he said.