"Turfing out valuable migrant workers who are turned down for settlement would be incredibly disruptive to companies of all sizes, and to the UK`s economic recovery," said Adam Marshall of the British Chambers of Commerce.
He said the immigration system had to protect the economy as well as the borders.
Many British companies employ foreign professionals when the required skills and experience are not available within the UK or EU. Not allowing them to settle in the UK will not only affect their lives but also the functioning and expansion plans of employers.
Business leaders have warned that government plans to create a temporary workforce of overseas skilled migrants will be "incredibly disruptive" to Britain`s economic recovery.
Announcing the new proposals yesterday, Immigration Minister Damian Green said the David Cameron government wants the brightest and best workers to come to the UK, "make a strong contribution to our economy while they are here, and then return home."
Marshall said these proposals could deter some skilled workers from coming to the UK in the first place.
"The criteria for which migrants do get settlement rights must reflect business needs and the economy, as well as political considerations," he said.
Under current rules, migrants who work in Britain for five years are allowed to settle here permanently.
The proposals seek to break this link between working and automatic permanent settlement, except for a limited number of high worth individuals.
Habib Rahman, of the Joint Council for the Welfare of Immigrants, warned the new proposals would create a "guest workers" scheme in Britain.
"The guest workers will have a very restricted right to settle in the UK and will have fewer rights when they are here," he said.
"It will open them up to exploitation and lead to a two-tier workforce in Britain. The restrictions on legitimate avenues to settle is bound to lead to increasing irregularity and overstaying," Rahman cautioned.
However, Andrew Green of MigrationWatch, said the plan would provide an incentive for employers to train British workers rather than take skilled foreign workers "off the shelf".
The proposals, announced yesterday in a public consultation exercise, will affect Indian skilled workers as well as domestic workers such as cooks and maids who travel to Britain with their employers.
Home Secretary Theresa May said she will "break that link and return to a position where Britain will continue to attract the brightest and best workers, who will make a strong contribution to our economy and society during their stay, then return home."
"A small number of exceptional migrants will be able to stay permanently but for the majority, coming here to work will not lead automatically to settlement in the UK," May underlined.
Campaign groups said that if foreign professionals were not allowed to settle here permanently, they would rather migrate to countries such as Canada and Australia.
Amit Kapadia of the Highly Skilled Migrants Forum (HSMF) told PTI that it will launch a protest against the plans.
India is among three countries mentioned in the consultation document from where the most number of overseas domestic workers come to Britain; the other two are the Philippines and Indonesia.
The tighter rules will also affect diplomats from India and other non-EU countries posted here who bring along their domestic help.
Immigration Minister Green said "settlement has become almost automatic for those who choose to stay."
"This needs to change. The immigration system has got to be made to work properly," he said.
"We want the brightest and best workers to come to the UK, make a strong contribution to our economy while they are here, and then return home," the minister underlined.
The consultation proposes that people earning over 150,000 pounds or doing jobs that have a specific economic or social value to the UK be allowed to stay in the country permanently.
Plans include a new category to allow most exceptionally talented skilled workers to apply to stay after a three-year period in the UK.