The move was welcomed by those who argued that the movement of workers from eastern Europe is unsustainable. But others accused Mr Reid of caving in to the anti-immigration lobby.

Bulgarian and Romanian officials expressed disappointment that they had been singled out for restrictions.

The decision to abandon the government's open door policy towards eastern Europe comes after the Home Office underestimated how many workers would arrive when 10 new states, including eight central and east European countries, joined the EU in May 2004.

It was estimated around 15,000 economic migrants would enter the UK from these eight countries but in fact hundreds of thousands of foreign workers have arrived, the majority of them from Poland.

Mr Reid announced a package of transitional control orders which will be reviewed in 12 months.

The toughest new restrictions on Bulgarians and Romanians focus on lower-skilled workers, who would initially be able to work only in the food processing and agricultural sectors, Mr Reid said.

A quota of 19,750 places a year has been put in place for these sectors in the new measures announced by the home secretary, in a written statement to parliament.

There will also be a new Migration Advisory Council which will analyse the UK labour market - and the policies on migrant workers in other EU countries - and give guidance on whether more unskilled workers from Bulgaria or Romania are needed, and if they could benefit other economic sectors.

Mr Reid said firms outside the food processing and agriculture sectors would have to "convince the government there is a genuine labour shortage, and such schemes would be limited by quota".

There will be no special restrictions on self-employed workers, paving the way for Bulgarians and Romanians - so-called A2 nationals - to compete with the UK's growing army of Polish plumbers.

Previous estimates said self-employed migrants in the last wave of EU expansion made up a third of the overall total. If this kind of proportion were repeated among would-be A2 economic migrants, this would suggest that a total of around 30,000 Romanians and Bulgarian workers would be coming to the UK.

Mr Reid said: "The terms of the accession treaty do not allow us to place restrictions on EU nationals' rights to come here to set up a business. So the self-employed will continue to be able to work here - and in all other EU countries - if they can prove when challenged that they are genuine, and not in fact employees posing as contractors."

Some A2 nationals - such as engineers and doctors - will be allowed to enter the UK to work under the highly skilled migrant programme; though it is thought unlikely these will account for more than 100 people a year.

Mr Reid said Romanian and Bulgarian students enrolled at approved colleges will be able to work part-time - last year these groups totalled 1,213. A2 workers with specialist skills which cannot be met by resident labour, provided they meet tests on qualifications and earnings - will also be allowed to work in the UK. This group numbered 1,740 last year.

Skilled workers, such as builders, were in the forefront of the previous wave of eastern European immigration, when there was no limit on the number of work permits issued.

Critics said restricting unskilled workers would lead to more people in the UK working illegally, but Mr Reid said A2 nationals working illegally would face on-the-spot fines. Firms who hired A2 nationals without proper permits would also face "heavy fines" he said. Reports suggested individuals faced fines up to £1,000 and firms faced fines up to £5,000. "Employing illegal workers undercuts legitimate business and leads to exploitation. It will not be tolerated," Mr Reid said.

The UK, Ireland and Sweden were the only countries to allow unrestricted rights to work when the new states joined in 2004. The citizens of countries that join the EU are allowed to live and work in any EU country, but countries are permitted to impose restrictions on the nationals of new member countries for seven years after they join in order to manage any transitional effects they might have on their economies.

Reports suggest there has not been full agreement in the cabinet about the best way to approach the accession of Bulgaria and Romania. Downing Street is believed to back Mr Reid's view that restrictions are necessary to prevent a political backlash. There have been particular concerns among some ministers about the impact of immigration on working class Britons, especially at a time when unemployment has been rising.

Today Mr Reid admitted there had been some "transitional impacts" from the last round of EU expansion in 2004, and some how local communities coped with sudden influxes of migrants.

He said: "A small number of schools have seen a significant increase in admissions. Some local authorities have reported problems of overcrowding in private housing. There have been cost pressures on English language training."

The Department of Communities and Local Government will audit local areas and work to meet "isolated and specific pressures", Mr Reid said. It was announced that funds of £400,000 will be made available to support schools with limited experience of teaching English to new migrant pupils.



Reid's plan 'unworkable'



Former minister for Europe Keith Vaz criticised Mr Reid's plan as "unworkable, undesirable and unnecessary" and said it damaged the "reputation of the UK as a champion" of EU enlargement.

Liberal Democrat home affairs spokesman Nick Clegg said the restrictions were a "stop-gap system that is unlikely to prove workable", and said many A2 nationals would want to travel to work in southern Europe. "This complex scheme is asking a lot in terms of enforcement from an Immigration and Nationality Directorate which Dr Reid has branded unfit for purpose," Mr Clegg said.

The Tory home affairs spokesman, David Davis, said his party welcomed what Mr Reid said in principle and had called for restrictions on A2 nationals two months ago but added that there was scant detail. "Mr Reid has merely slipped out a limited written statement designed to deal with tomorrow's headlines but which leaves several important questions unanswered," Mr Davis said.

Sir Andrew Green, chairman of the Migration Watch pressure group, said: "This is not a U-turn but it is a turning point. The government have at last recognised that the present massive level of immigration is unsustainable, placing huge burdens on our society for very little economic benefit. These measures are a tiny step forward but they fall far short of an annual limit on immigration, which is now supported by 75% of the British public."

The latest figures show that 427,000 people arrived in Britain from Poland and the seven other ex-Communist states, but the figure may be 600,000, including self-employed workers such as builders.