Cambridge University took in more overseas students last year and saw a drop in UK entrants, figures show.
There was a drop in applications to study at Cambridge in 2005
The institution had a fall in the number of students applying for courses starting in October 2005.
But the university said 16.7% of students given places came from outside the UK - up from 13.4% in 2004.
Cambridge had warned it had a £10m deficit. But the university denied it had a policy of increasing overseas students - who pay full fees.
Students from the UK are still subsidised.
A university spokeswoman said internal analysis had shown there was no economic benefit to teaching foreign students over those from the UK.
"We are going to admit the best students - they are getting in on academic grounds," she said.
The latest figures showed 14,343 students applied for 3,378 places on courses starting in 2005, or for deferred entry in 2006.
This was down slightly from what the university described as the "record high" of 14,684 in 2004.
And the drop ran against a national trend which saw an increase in university applications - apparently as students rushed to get in ahead of top-up fees which are introduced this autumn.
The latest national figures for 2006, when students will be charged fees of £3,000 a year, showed a 3.4% drop in overall applications.
Cambridge's figures showed that the proportion of UK students taken from state schools and colleges rose by one percentage point to 58.1%.
Director of admissions for the Cambridge Colleges, Dr Geoff Parks, said: "We firmly believe that the UK's brightest students deserve the opportunity to study at Cambridge, regardless of their background.
"The very high quality and increasing diversity of Cambridge's student body shows that the sole criterion for admission is academic ability."
A university spokeswoman added the drop in applications last year could be down to some weaker candidates realising they were unlikely to win places.
"We suspect that we have lost some of the longer tail of weaker applicants," she said.