Home Secretary David Blunkett has suspended business immigration claims from Romania and Bulgaria in the wake of the latest row on migrant checks.
Ms Hughes is facing a second wave of criticism
The Tories will step up pressure on Immigration Minister Beverley Hughes in a Commons debate on the issue.
A British diplomat in Bucharest has been suspended for claiming migrants were allowed to stay in Britain despite warnings about flawed applications.
Mr Blunkett says he is freezing claims while the row is investigated.
The suspension applies to applications made under the European Community Association Agreement (ECAA) - a migration scheme for prospective business people from some countries outside the EU.
Downing Street is urging people not to rush to judgement.
Saying inquiry officials would travel to Romania and Bulgaria, the prime minister's official spokesman said: "This is a serious allegation and will be taken seriously by the government. The test of that has been the government's response to them."
Tony Blair still "absolutely" had confidence in Ms Hughes, he added.
The home secretary will defend Ms Hughes in Tuesday's Commons debate as the Tories renew their calls for her resignation after the new claims.
James Cameron, a civil servant in the British embassy in Bucharest, e-mailed his concerns to shadow home secretary David Davis.
Mr Davis has accused the government of a cover-up, but Ms Hughes says she will not quit or be forced out of office.
The civil servant, who now faces disciplinary action, has accused officials of ignoring advice that applications from Bulgarians and Romanians and other eastern Europeans were based on forged or suspect documentation.
The Tories are alleging that there was a system of weakened checks in order to clear a backlog and will make the affair the centrepiece of an opposition-led debate on immigration on Tuesday.
Mr Blunkett told BBC Radio 4's Today programme: "I intend to suspend all applications, not just the fast-track, from Romania and Bulgaria as from this morning until we get to the bottom of this."
Senior immigration and nationality official Ken Sutton, who investigated previous concerns, is being asked to reopen his inquiry.
The home secretary also offered staff a hotline to raise their concerns without fear of suspension.
He said the public would be understandably bewildered in the wake of a spate of claims about the immigration system and he asked people to listen to the facts.
"I carry ultimate responsibility and accountability for what goes on and I will answer for it
today in the House," he added.
Mr Davis said Mr Cameron had claimed checks waived by Sheffield immigration officials, which led to the suspension of whistleblower Steve Moxon, were the "tip of the iceberg".
"The government's attempts to cover up information this man sent me knows no bounds," he said.
"After smearing one civil servant, they now suspend a British consul for doing what he feels is his public duty, namely telling Parliament what Beverley Hughes left out of her account of the whole immigration system."
He said he had only now released the e-mail because he had not known who the official was until last Friday.
Ms Hughes accused Mr Davis of political opportunism in waiting three weeks before releasing the text of the e-mail.
She told BBC Two's Newsnight: "They simply want to use this material for their own political ends to fuel people's fears about immigration and keep a bad story running."
The minister said she had not known the details until Monday. Mr Cameron had been interviewed by the Foreign Office last week but he had not offered a copy of the e-mail.
Last week the Mr Sutton's inquiry found a decision to waive checks in Sheffield on eastern Europeans seeking to come to Britain to set up businesses had been taken by junior staff without ministers' approval.