The UK Border Agency has revoked London Metropolitan University's licence to sponsor overseas students, a move that means the institution cannot continue to teach its existing 2,600 students from outside the EU.
England's funding council moved to head off any impact on overseas perceptions of the sector as a whole, emphasising that no other UK university has had its licence revoked, while Universities UK, the University and College Union and the National Union of Students criticised the UKBA over the decision.
David Willetts, the universities and science minister, has announced the formation of a taskforce - led by the Higher Education Funding Council for England and UUK- to help overseas students affected by the decision.
He said: "It is important that genuine students who are affected through no fault of their own are offered prompt advice and help, including, if necessary, with finding other institutions at which to finish their studies."
The decision to revoke the university's licence follows an audit by the UKBA.
Damian Green, the immigration minister, said this morning on BBC Radio 4's Today programme that the ban was caused by a “serious, systematic failure where a university does not have the capacity to be a proper sponsor”.
“London Metropolitan University [was] very seriously deficient as a sponsor”, he said.
Mr Green listed three serious breaches which had led to the revocation of London Met’s licence.
One quarter of non-EU students sampled were studying at London Met without leave to remain in the UK, he said.
Many students did not reach the required standard of English to study in the UK, he added, while the university could not demonstrate students were regularly attending classes in more than half of cases surveyed by the UKBA.
The decision means that the university's 2,600 existing non-EU students will have 60 days either to find places at other universities or to leave the country.
London Met was already prevented from enrolling new overseas students after its "highly trusted sponsor" status was suspended last month.
Eric Thomas, vice-chancellor of the University of Bristol and president of UUK, criticised the decision to revoke London Met’s licence.
“We believe that there were alternative ways of addressing UKBA's concerns and that revocation of a university's licence should only be a decision of last resort”, Professor Thomas said.
“The UKBA's decision to revoke London Metropolitan University’s licence will cause anxiety and distress to those many legitimate international students currently studying at London Metropolitan and their families.
“We will be working with UKBA to ensure that compliance issues can be addressed in a more constructive way in the future.”
Sally Hunt, general secretary of the UCU, said: “The UK remains one of the most popular destinations for foreign students because of our proud international reputation for excellence and we need that to continue. No matter how this is dressed up, the damaging message that the UK deports foreign students studying at UK universities will reach all corners of the globe."
Pam Tatlow, chief Executive of the Million+ group of newer universities, said: “The UKBA has played fast and loose with the international reputation of the UK's world class higher education system. It now needs to make sure that no student misses out, whether they have already started their course or were planning to start in the autumn.”
Liam Burns, NUS president, said: "It is disgusting that international students continue to be used as a political football by politicians who seem either incapable of understanding, or are simply uncaring about the impact of their decisions on individuals, universities and the UK economy.
"Politicians need to realise that a continued attitude of suspicion towards international students could endanger the continuation of higher education as a successful export industry."
Mr Burns echoed calls from UUK for non-EU students to be excluded from the net migrant count. Many in the sector believe this could help the government reach its targets to reduce immigration while withdrawing such students from the heated debate over the issue.
London Met said in a statement: "The implications of the revocation are hugely significant and far-reaching, and the University has already started to deal with these. It will be working very closely with the UKBA, Hefce, the National Union of Students and its own Students' Union.
"Our absolute priority is to our students, both current and prospective, and the university will meet all its obligations to them."
Hefce said in a statement that the decision "will have significant implications for the university and its students".
The funding council added: "This is an unprecedented situation which relates only to London Metropolitan University. It will not affect existing or future international students at other universities. No other UK university has had its licence to sponsor international student revoked, and UKBA’s decision does not in any way reflect concern about licensing arrangements at other universities in the UK."
A UKBA spokesman said: "These are problems with one university, not the whole sector. British universities are among the best in the world - and Britain remains a top class destination for top class international students."
Speaking before the decision was made final, Max Watson, Unison branch chair at London Met, said some staff feared that a ban on taking non-EU students could lead to the university's demise. "Some people are seeing this as the start of the endgame," Mr Watson said.
Also speaking before the decision was made final, Malcolm Gillies, vice-chancellor of London Met, warned that revoking the university's licence could seriously damage the reputation of all UK universities, for whom income from overseas students is increasingly important.
"The impact on the sector would be profound," Professor Gillies said. "It would be a mad thing to do.
"I am [about to speak] on Indian TV and you can imagine the kind of questions I'll be answering. I'll be doing my best to maintain the high reputation of the sector."
In 2010-11, English universities increased their income from overseas student tuition fees by 16 per cent to ?2.5 billion. Fees paid by overseas students made up 10.9 per cent of the sector's income, "the highest on record", according to the Higher Education Funding Council for England.
The loss of its licence will likely cause great financial pain for London Met. In 2010-11, some 15 per cent of its ?157.8 million income came from foreign student fees.
In addition, the university has been ordered to repay about ?6 million in income accruing from the over-recruitment of home and EU students last year.
The university still owes Hefce ?25 million over a separate, previous failure to report home and EU student numbers correctly.
Unison's Mr Watson said that while some staff believed revocation could spell the end for the university, "others fear this is a 'shock and awe' tactic [by the government] for pushing through the wholesale privatisation of London Met. They believe ministers will simply say, 'It's privatisation or nothing.'
"This [university] administration knew they were playing with fire by cutting resources - including jobs in the registry - while going into this experiment with private industry.
"They took their eye off the ball when they knew there were problems with visa compliance."