David Cameron risked fuelling a fresh wave of anger among his Eurosceptic backbenchers after accusing a prominent Tory of spreading a "scare story".
Jacob Rees-Mogg claimed the £9 million taxpayer-funded pro-EU leaflet that has begun landing on voters' doormats was a "propaganda sheet" that contained "untrue" information.
During Prime Minister's Questions, the Conservative backbencher said that despite significant levels of economic migration, the glossy pamphlet claimed that Britain has control of its borders.
"Have we withdrawn from the free movement of people or is that sheet simply untrue?" he asked.
But Mr Cameron hit back, insisting the comments underlined the need for the Government to spend public money on a leaflet so voters can "see the truth".
The PM said: " The truth is this, economic migrants that come to the European Union do not have the right to come to the UK. They are not European nationals."
He added: "Frankly, this is why it is important that we do send information to households so they can see the truth about what is being proposed. What (he) has just put forward is classic of the sort of scare story we get. Britain has borders, Britain will keep its borders, we have got the best of both worlds."
Furious Tory Eurosceptics have previously claimed the leaflet shows the Government is using the ''spiv'' tactics of Zimbabwe's Robert Mugabe.
Labour said party leader Jeremy Corbyn believed the Government should have provided a "more even" assessment of the facts about Britain's EU membership in the leaflet, in order to enable voters to weigh up the arguments on either side and make an informed choice.
Mr Corbyn has committed Labour to campaigning for Britain to remain in the EU and is set to make a high-profile speech on Thursday to set out his own personal journey on the issue since the 1975 referendum, when he opposed membership of the Common Market.
Asked whether Mr Corbyn thought the Government was right to spend £9 million on a leaflet setting out only the arguments for continued membership, a senior Labour source told reporters: "Jeremy is of the view that the Government should supply a more even approach on information, to allow for an informed decision by the public, while we would still campaign to stay in Europe."
The spokesman confirmed the Labour leader will not share a stage with Mr Cameron during the referendum campaign, but said he would appear with representatives of pro-EU trade unions including Unison, which has announced it will encourage its 1.3 million members to vote Remain on June 23.
Pro-Brexit minister James Wharton criticised the way Mr Cameron dismissed the question by Mr Rees-Mogg.
"I don't think the Prime Minister was right to dismiss Jacob's comment. There are lots of complex arguments on both sides of the EU debate. It is not a simple decision as to which is right," he told BBC Radio 4's World At One.
He also expressed regret that the Government had gone ahead with the pro-EU leaflet.
"I would rather have seen the leaflet not go out. As one colleague said to me, the main problem with it was it wasn't sufficiently absorbent for the use to which they wanted to put it," he said.
MPs will have a chance to discuss the leaflet in the House of Commons on May 9, after the parliamentary Petitions Committee ordered a debate in response to an e-petition which has gathered more than 210,000 signatures.
Mr Cameron hosted a reception of representatives of business organisations from Germany, France, Spain and the Netherlands at 10 Downing Street to discuss Britain's future in Europe.