London Metropolitan University has been banned from teaching overseas students, leaving more than 2,000 undergraduates potentially facing deportation.
The London University has had its right to sponsor students from outside the EU revoked, and will no longer be allowed to authorise visas.
Ministers have concerns over issues such as whether or not students are working instead of attending courses.
A task force has been set up to help students affected by the decision.
The UK Border Agency said it had "failed to address serious and systemic failings" identified six months ago.
As well as stopping the university, which has 30,000 students in total, from accepting new applications, losing the licence could also affect thousands of existing overseas students at the university.
The National Union of Students (NUS) said it could mean more than 2,000 students being deported within 60 days unless they found another sponsor.
According to NUS President, Liam Burns:
This decision will create panic and potential heartbreak for students not just at London Met but also all around the country’. ‘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.
‘This heavy-handed decision makes no sense for students, no sense for institutions and no sense for the country’. ‘This situation and the botched process by which the decision was arrived at could be avoided if international students were not included in statistics of permanent migrants’.
An NUS survey carried out earlier this year after changes to international student policies found that 40 per cent of foreign students would not recommend Britain as a study destination.
The advocacy group also said that in recent weeks they had heard from an increased amount of students who now feel unwelcome in the UK.