There is no cap on what universities can charge international students
Universities in the UK should beware of treating overseas students as "cash cows", the British Council has warned.
The council said universities might be tempted to enrol more non-European students - who can be charged full fees - to plug holes in declining budgets.
It said "crude" international recruitment drives could undermine the reputation of UK higher education.
The warning comes as the sector faces a period of funding cuts and record numbers of applications for courses.
In England, universities face real terms budget cuts next year of 1.1% and Welsh universities are likely to face a major review into how they are run, to ensure they deliver value for money.
Scottish Universities have been told they will have a 1.2% increase on funding.
The squeeze on funding coincides with record numbers of young people applying to university.
Figures published last month by university admissions service, Ucas, showed a 22.9% increase in applications this year on last year.
Fees of £32,000
The British Council fears this squeeze on funding, as well as a government-imposed cap on the number of places that can be offered to home students, will encourage universities to recruit from outside of Europe.
Indeed, the number of international students coming to the UK to study is steadily rising.
Official figures show that in 2007-08, there were 229,640 students in the UK from outside the European Union, compared with 117,290 in 1998-99.
And research by the vice-chancellors' group, Universities UK, found fees for these students ranged from about £8,500 to more than £32,000, depending on the course.
The council said the "significant economic value" of these students to UK universities could not be denied, but warned against treating them "like an export industry".
British Council chief executive Martin Davidson said: "It would be seriously counter-productive and, in the long run, potentially self-defeating, for universities to focus on intensifying student recruitment drives as a knee-jerk reaction to current financial difficulties and state funding cuts.
"International students have more study options today than ever before, and in an internet-connected world word quickly spreads when it appears a university regards them as little more than 'cash cows'.
"In today's rapidly evolving marketplace, overseas governments will react against foreign universities that are clearly only interested in recruiting students from their country and giving nothing in return."
The council is raising its concerns at its international education conference, Going Global, in London.