Migrants are employed in both skilled and unskilled labour in the UK
The government has rejected demands for strict limits on the number of workers from outside the European Economic Area allowed to settle in Britain.
Immigration Minister Liam Byrne said a new points system based on skills and labour shortages was a better policy.
He was responding to an all-party group of MPs' call for "balanced migration," and 4-year limits for foreign workers.
The group says Britain will not be able to cope with the estimated 7m rise in migrants forecasted by 2031.
Former Labour minister Frank Field and former Conservative minister MP Nicholas Soames are chairing the Cross-Party Group on Balanced Migration.
They are calling for immigration levels to the UK from outside the European Economic Area - the EU member states plus Iceland, Liechtenstein and Norway - to be capped in line with the number of emigrants to maintain a stable UK population over time.
The group says it also wants to "break the link" between those who come to the UK to work and those who settle in Britain, by putting a strict time limit - 4 years - on the length of time foreign workers from outside the EU are allowed to stay.
It says that while immigration has brought some benefits it has also put services such as schools, transport and the NHS under enormous strain.
HAVE YOUR SAY
We have enough people in this country to fill ANY vacancy
Mr Soames told the BBC: "We have to do something. By 2009 this small island will be the most populated country in Europe, with all the strains on the infrastructure - such as the education and health service."
Official figures recently suggested Britain would need to build seven new cities the size of Birmingham to house an estimated seven million newcomers by 2031.
The group has commissioned a survey which it says suggests that eight out of 10 people would like to see a big reduction in immigration.
But Immigration Minister Liam Byrne said that caps and quotas were not the answer.
"Our tough new points system plus our plans for newcomers to earn their citizenship will reduce overall numbers of economic migrants coming to Britain, and the numbers awarded permanent settlement," he said.
Unlike made-up quotas, he said, the points system would mean the government is not depriving British businesses from benefiting from vital skills it needs.
The Joint Council for the Welfare of Immigrants said such a cap would be "divisive and wasteful of talent".
Council chief executive Habib Rahman, said the proposals ignored the positive contribution which migrants make to life in the UK.
"As well as much-needed skilled workers, many come and do unskilled jobs that need to be done, but for which employers are unable to find home-grown workers," he said.
Those that stay on are wanted by employers and they pay their taxes, he added.
"Denying migrants a stake in society isn't a route to social cohesion - it's divisive and wasteful of talent."
Shadow home secretary Dominic Grieve said: "We have made our own proposals to set an annual limit on economic immigration, because we want to reduce the pressure on our public services which has been caused by the uncontrolled immigration levels of recent years."
Labour MP Mr Field led the backbench rebellion over the 10p tax rate earlier this year.
Mid-Sussex MP Mr Soames, a grandson of Sir Winston Churchill, served as Armed Forces minister from 1994 to 1997.