Citizens of European Union countries will be given a two-year grace period to apply for settled status once Britain leaves the bloc, the Government has said.

Ministers said a new working paper released ahead of the next round of Brexit talks on Thursday spelled out a “streamlined system” for EU nationals.

The proposal says the Government intends to keep the amount of paperwork required to apply as low as possible and that any application would be affordable, costing no more than one for a British passport.

EU nationals wishing to stay in the UK will also be given a right to appeal any rejection, with the rules for who can and cannot stay set to be spelled out in any final withdrawal agreement.

The Government has also clarified that it will not require EU citizens to have private health insurance.

Some EU citizens’ rights campaigners, such as the 3million group, have rejected proposals for EU nationals to have to apply for “settled status” however. They say such an approach will be bureaucratic, prone to errors, and that the current situation of permanent residence should continue indefinitely.

The rights of EU citizens are one of the three major areas of discussion that Brussels wants settled in Brexit talks before talks on trade arrangements can begin.

In a two-day round of talks at the end of the week negotiators will also consider the issues of the Northern Ireland border and the so-called “divorce bill”.

“We have been clear that safeguarding the rights of EU citizens is our top priority in negotiations. They make a huge contribution to our economy and society and we do not want to see that change as a result of our decision to leave the EU,” Secretary of State for Exiting the EU, David Davis said.

“We will support everyone wishing to stay to gain settled status through a new straightforward, streamlined system.

“The last negotiation round saw real progress in this area and I hope the document we have published today can facilitate the deal we need to guarantee the rights of UK citizens living in the EU27, and vice versa."

Home Secretary Amber Rudd said: “We have been clear that EU citizens living in the UK make an enormous contribution to our country and we want them to stay.

“Applying for settled status will be a streamlined, low-cost, digital process and EU citizens are being consulted on its design to ensure it is user-friendly.

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“We know that there is some anxiety among EU citizens about how the process of applying for settled status will work so I hope this document provides some further reassurance.”

A spokesperson for 3million said: "There is no change for EU citizens in the UK. Like British citizens in Europe, we are still bargaining chips in the Brexit negotiations and the British Government is making this announcement as talks are resuming tomorrow in Brussels.