Nicolas Sarkozy today took a hard line in France's latest row over Islamic dress, saying full veils and face coverings were a sign of women's debasement and "not welcome" on French soil.

More than 50 MPs, mostly from the president's centre-right UMP party, last week backed calls for a parliamentary inquiry to debate whether Muslim women who wear full-body religious veils with only their eyes visible posed a threat to the republic's secular values and gender equality. A government spokesman had suggested that a law could eventually be proposed to ban full coverings from being worn in public in France.

Sarkozy today used his first state of the nation speech to defend the French republican principle of secularism and attack full Islamic veils.

He said: "The problem of the burka is not a religious problem, it's a problem of liberty and women's dignity. It's not a religious symbol, but a sign of subservience and debasement. I want to say solemnly, the burka is not welcome in France. In our country, we can't accept women prisoners behind a screen, cut off from all social life, deprived of all identity. That's not our idea of freedom."

There was raucous applause from MPs and senators. Sarkozy backed the setting up of a parliamentary commission on the issue of full Islamic veils, calling for all arguments to be heard. "But I tell you, we must not be ashamed of our values. We must not be afraid of defending them," he said.

Earlier in his speech, he warned against stigmatising religion in secular France. "We must not fight the wrong battle. In the republic, the Muslim religion must be respected as much as other religions."

Muslim headscarves and all religious symbols were banned in schools in 2004, and the latest row over religious dress is likely to spark more soul-searching and controversy in France.

There are no figures for the number of Muslim women who cover their face, but it is believed to be a very small minority. In France, the terms burka and niqab are often used interchangeably – the former refers to a full-body covering worn largely in Afghanistan with a mesh screen over the eyes, while the latter is a full-body veil, often in black, with a gap for the eyes.

Critics have already warned that the government risks stigmatising Muslims over a minor and marginal issue. After Sarkozy's speech, the leftwing senator Jean-Pierre Chevènement said the subject was difficult because people were free to dress how they liked in public under French law, but full veils could contravene French ideas on gender equality. He cautioned against whipping up "pointless provocations".

Sarkozy's views on Muslim women's dress came as he set out his social and economic reform themes for the second half of his five-year term. He made history as the first French leader in more than 100 years to address a special sitting of both houses of parliament in the sumptuous setting of the Chateau of Versailles.

For more than a century the parliament has sought to preserve its independence by not allowing France's powerful leaders to address MPs and senators directly. The French constitution was changed last year to allow the president this new privilege, but critics on the left accused Sarkozy of weakening the role of prime minister and behaving like a power-grabbing "hyper-president" or monarch.

Sarkozy used the speech to stress that the financial crisis had brought the "French model" of strong public investment and generous social spending back into fashion across the world.

He warned that the financial crisis was not over and France more than ever needed the public sector, economic and educational reforms he has styled himself as the only man brave enough to deliver.

He ruled out tough austerity measures or raising taxes to deal with France's public debt. Instead, he pledged to raise a new public loan to help France out of the economic crisis, despite the country's ballooning budget deficit.

Sarkozy's plans for the coming years included a review of the French retirement age of 60, tough new carbon tax measures, cuts to health spending and building new prisons.

Breaking with tradition

Nicolas Sarkozy yesterday made history as the first president to address parliament in more than 100 years. Since 1875, France's leaders have been banned from appearing before lawmakers to safeguard parliamentary ­independence. But Sarkozy changed the constitution last year, allowing him to address parliament once a year. He delivered his US-style state of the union speech to a congress of both houses of parliament – MPs and senators – at the Chateau of Versailles. But critics on the left accused him of weakening the role of his prime minister. Media commentators called him the "Sun President", an allusion to the "Sun King", Louis XIV, who built Versailles. Greens and Communists boycotted the speech, while Socialists left immediately after in protest that the president was not obliged to debate his speech. Sarkozy said he was setting in motion a "profound change" to the French republic that showed the importance of the French parliament.