London Mayor Ken Livingstone has said it would be "illegal" to give UK citizens priority over immigrants when deciding who gets council homes.
Mr Livingstone said immigrants found it harder to get homes
His comments come after industry minister Margaret Hodge said allocation should involve length of residence and national insurance payment details.
Mr Livingstone called this idea "wrong", adding that immigrants found "it very much harder" to get homes
The minister's remarks would be seen as "scapegoating", he said.
Mrs Hodge called for a rule change in a newspaper article, saying this would help "promote tolerance rather than inviting division".
She said she was aware it was a difficult issue, but she was trying to listen to her constituents' concerns and wanted to start a debate.
Mrs Hodge questioned whether economic migrants should "presume to have automatic access immediately to public social housing".
She also said white, black and Asian British families on low incomes, who had lived in an area for several generations, could not get their own homes and all felt there was an "essential unfairness" in the system.
But Mr Livingstone said: "Margaret Hodge is wrong. Far from it being the case that immigrants are jumping the housing queue, the opposite is true, with immigrants naturally finding it very much harder to find their way round a system with which they are not familiar."
He added: "Instead of making remarks which will be seen as scapegoating immigrants, senior politicians like Margaret Hodge should be working to solve the real housing shortage affecting all communities.
"Margaret Hodge's suggestion that housing allocation should be based not on need but factors like length of residence would be catastrophic for community relations.
"In reality it would quite rightly be illegal to take immigration status into account in allocating housing.
"Politicians in general, and government ministers in particular, should get their facts right before making statements with the potential to do great harm to the good community relations on which the prosperity of all Londoners depends."
On Monday, Northern Ireland Secretary Peter Hain said housing should be "based on need, like the NHS" and that policy should not be made "on the hoof".
A Downing Street spokesman said the key was to keep increasing the amount of social housing.