Image caption Net migration to the UK stood at 196,000 last year

Thousands of employees of multinational companies will be exempt from the government's immigration cap, Prime Minister David Cameron has indicated.

The government is still deciding on the level at which the cap will be set - and to whom it will apply.

But speaking at Prime Minister's Questions, Mr Cameron said: "Intra-company transfers shouldn't be included in what we are looking at."

Labour said the cap policy was "unravelling before our eyes".

The cap on migrant numbers from outside Europe comes into effect next year.

The majority of skilled workers entering the UK from outside the European Economic Area come in on intra-company transfers. In 2009, they accounted for 22,000 out of a total of 36,490 skilled migrants.

Under present rules, workers on intra-company transfers can stay for up to five years.

The immigration cap - which was a key part of the Conservatives' election manifesto - is aimed at cutting net immigration from its current level of 196,000 a year to "tens of thousands". A temporary cap of 24,100 will be replaced by permanent measures from April 2011.

But it has provoked a furious backlash from businesses, who claim it will leave them at a competitive disadvantage.

Companies have been particularly angry about intra-company transfers being included in the cap - even though the Home Office believes some companies, particularly in the IT sector, have been transferring cheap staff to the UK to do jobs that could be filled by UK graduates.

'Inward investment'

But according to the Financial Times, companies in other sectors have threatened to close British plants and move overseas if they are not allowed to bring in staff from their operations in other countries.

At Prime Minister's Questions, Mr Cameron appeared to suggest that the business lobby had got its way.

He was asked by Lib Dem MP Sir Robert Smith to ensure industry's concerns about the "future of the visa system" were addressed by the Home Office "to ensure that vital inward investment is not lost to this country".

Mr Cameron replied: "As we look through the last government's points system and immigration policy, we really do believe that it is not going to be difficult to achieve much better immigration control without disadvantaging business.

"For instance, things like intra-company transfers shouldn't be included in what we are looking at."

The Home Office declined to comment on Mr Cameron's words. Downing Street said the prime minister had "made it clear that Britain is open for business and will continue to attract the brightest and the best".

A spokeswoman said she could not comment on the level the cap would be set at, or any exemptions, but said the policy would "deliver for business".

Mr Cameron's intervention suggest that business secretary Vince Cable, who has been lobbying for a more flexible cap, has won his battle with the Home Office over the issue.

Shadow immigration minister Phil Woolas, for Labour, said: "As we predicted, this policy is unravelling before our eyes, with coalition ministers at war behind the scenes.

"But the government needs to go back to the drawing board and rethink the whole policy. As the home affairs select committee concluded, the cap is not only bad for business and our economy but it also does little to control immigration. And we've also heard this week how it is set to damage cancer research in this country.

"Instead of an arbitrary and inflexible cap, the new points-based system Labour introduced allowed us to manage migration without damaging the economy."

'Original purpose'

The CBI has been urging the government to exempt intra-company transfers from the cap, arguing that the they "enhance the UK's attractiveness as a global location for investment and jobs".

But Sir Andrew Green, of the Migration Watch think tank, said the system was being abused - and was shutting many UK graduates out of the jobs market.

"In 2009. over half of all intra-company transfer visas issued went to Indian IT workers - 10,000 to just three companies.

"They are clearly undercutting tens of thousands of unemployed UK IT workers while computer science graduates suffer the highest unemployment of any discipline, currently 16%."

He said intra-company transfers could be "substantially reduced" by "returning this route to its original purpose of bringing key staff to the UK offices of a multinational company".

"To do so, the minimum salary level should be raised to £50,000, and the cost of sponsorship increased dramatically in line with the number of visas requested," he added.

It comes as a committee of MPs said the cap was unlikely to aid the government in its aim of cutting net immigration - and ministers may need to look at fresh curbs on international students and those joining family members in the UK to bring the numbers down.

The Home Affairs committee also warned that industry and scientific research could be damaged by the cap.