The number of people applying for asylum in the UK in 2003 fell by 41% to 61,050, Home Office figures show.
Asylum figures are often disputed by campaigners
That figure, which includes applicants' families and dependants, compares with a total of 103,100 in 2002.
Home Secretary David Blunkett also highlighted a 23% rise in the numbers of failed asylum seekers removed.
Mr Blunkett said: "These figures show very significant progress has been made in dramatically reducing the number of asylum seekers entering the UK."
More stable world?
The United Nations refugee agency, the UNHCR, says asylum applications across the European Union as a whole fell by 22% between 2002 and 2003.
UNHCR spokesman Simon Taylor told BBC Radio 4's World At One: "The major driver behind the drop in figures right across Europe has been the reduction in the numbers of people from particular places, particularly Afghanistan and Iraq."
British restrictions, such as new visa regimes for people from countries like Zimbabwe, had also had an effect, he said.
Lib Dem home affairs spokesman Mark Oaten also put any applications drop down to "changed international circumstances".
He added: "If Mr Blunkett is right that asylum is falling, why is he so determined to introduce even more draconian measures in the future?"
For the Tories, David Davis asked how many illegal immigrants were currently in Britain.
"Blunkett himself admits he does not have a clue," he said.
"We know that the immigration service ignores illegal workers for the fear of rising asylum claims if caught."
The home secretary said the asylum application backlog was the "lowest for a decade".
"Claims are falling four times as fast as elsewhere in Europe and around 80% of decisions on new cases are made within two months."
Migration Watch UK's Sir Andrew Green welcomed the reduction in applications but argued the UK was still the largest recipient of asylum seekers in the West.
He said: "The asylum system continues to be used as a back door to Britain at the taxpayers' expense."
In the final three months of 2003, there were 10,830 new asylum seekers, down 52% on the same period in 2002.
The Home Office has also announced the UK is to be the first country to begin "enforced returns" of failed Iraqi asylum seekers, in the spring.
Initially, a pilot scheme will enable 30% to return.
There were 4,045 applications for asylum from Iraqis last year - the country which supplied the second highest number of asylum applicants.
The move to deport Iraqis was criticised by the UNHCR.
The agency said: "Such action is premature in the light of the continuing uncertain security situation and the poor infrastructure in the country."
It added that the situation remained volatile, with frequent attacks on Iraqi nationals and an absence of law and order in many parts of the country.
WHO IS APPLYING FOR ASYLUM?
Somalians - 1,245
Chinese - 855
Iranians - 735
Zimbabweans - 685
Turks - 635
Iraqis - 585
Pakistanis - 545
Indians - 485
Afghans - 385
DR Congo - 385
Other - 4,290
Q4, 2003. Excluding dependants
Source: Home Office
Home Office Minister Beverley Hughes instead said 150 Iraqis had so far asked to return home voluntarily.
"I think if we can start enforced returns we will see a much more rapid movement of people wanting to return voluntarily," she told the World At One.
Earlier, Mr Blunkett rejected suggestions Britain would be swamped when eight Eastern European countries join the EU on 1 May.
Mr Blunkett was responding to press coverage of new measures he is introducing to limit access to UK benefits to new EU citizens.
"We will not be swamped ... nor on the other hand will we be running scared," Mr Blunkett told BBC Radio 4's Today.