Immigrants will go on "probation" for up to five years before they can become full British citizens or permanent residents, Immigration Minister Liam Byrne has announced.
The Birmingham MP said the proposals were drawn up following consultation with a panel of city residents.
Plans to reform the immigration were unveiled by Mr Byrne (Lab Hodge Hill) and Jacqui Smith (Lab Redditch), the Home Secretary, yesterday.
A green paper announced the creation of a new category of resident, called a probationary citizen.
Anybody who hopes to become a full citizen of Britain or a permanent resident will:
* Have to spend at least one year as a probationary citizen when they will be ineligible for council housing or most benefits
* Be able to reduce the probationary period by demonstrating they are committed to becoming part of British society, for example by taking part in voluntary or community work. Those who fail to do so will remain probationary citizens for up to five years.
Ministers had originally planned to make community work compulsory but reconsidered after members of the public objected to the idea on the grounds it was "unBritish". The paper reports that consultation with members of the public also found there was support for making immigrants pay higher tax rates for a period of up to ten years.
However, this idea has not been taken up by the Government.
Instead, the fees paid by immigrants as they pass through the process of becoming a citizen are set to be increased, representing a contribution to the pressure placed on public services by immigration.
The money will be paid into a fund which is expected to raise "tens of millions of pounds", ministers said.
Mr Byrne said the proposals were drawn up after consulting members of the public at a series of panels. He said: "People in Birmingham had a direct hand in helping shape this Green Paper.
"One of the last public listening events was in Edgbaston, in Birmingham.
"We want to put British values at the centre of the journey to citizenship."
However, the proposals will not apply to migrants from European Union countries such as Poland.
The reforms, which radically change the process of becoming a citizen, complement proposals already announced to tighten up who is eligible to migrate to the UK.
The Home Office is introducing a points system, which is designed to ensure only people with the skills Britain needs are able to come here.
The Government will also introduce English tests for foreigners who plan to marry British citizens and settle in the UK, the Prime Minister said yesterday.
Introducing such tests will have a significant impact on new spouses from certain parts of the world, particularly the Indian sub-continent.
Mr Brown said: "We will introduce a new English language requirement for those applying for a marriage visa and planning to settle in the UK - both as part of our determination that everyone who comes here to live should be able to speak English and to make sure that they cannot be exploited."
There were signs that the changes may be opposed by sections of the Labour Party as Ms Smith was heckled by her own backbenchers, as she spoke in the Commons yesterday.
Diane Abbott (Hackney North and Stoke Newington) said the plans were unfair as they would force non-European migrants to pay fees that would benefit European migrants.
She said: "How can it be fair for non-white immigrants to have already steep fees ratcheted even higher to pay for issues which relate to the broad immigrant population including immigrants from the EU countries?"
As Ms Smith responded, Ms Abbott repeatedly interrupted her saying: "It's not fair, it's not fair."
Ms Smith curtly replied: "In response to your sedentary intervention, I believe as the whole of these proposals are, that it is fair."