Lower-skilled workers coming to Britain from Romania and Bulgaria will initially only be able to work in the food processing and agricultural sectors, Home Secretary John Reid announced today.
Mr Reid said there would be "transitional" controls on immigration after the countries join the EU next year.
In a written statement to Parliament, Mr Reid also said a Migration Advisory Council would be introduced to provide guidance on how low-skilled immigration should be managed.
Mr Reid said the "needs" of the UK's labour market would be key to decisions on allowing immigration.
"We will expect employers to look exclusively to workers from EU nations to meet any low-skilled labour shortages within the UK.
"We can therefore announce today that from January 1, 2007, we will be phasing out all low-skilled migration schemes for workers from outside the EU."
Areas other than food processing and agriculture industries will have to prove they need workers before immigration is permitted, according to Mr Reid.
"Employers will need to convince the Government there is a genuine labour shortage and such schemes would be limited by quota," he added.
People from Romania and Bulgaria - known as "A2" nationals - will face on-the-spot fines if they are caught working illegally, Mr Reid said.
Sources said the fine could be up to £1,000.
Mr Reid said: "We plan to make this punishable by an on-the-spot fixed penalty.
"It will also be an offence for an employer to take on undocumented A2 nationals. This will be punishable by a heavy fine.
"Employing illegal workers undercuts legitimate business and leads to exploitation. It will not be tolerated."
Sources indicated the on-the-spot fine for individual workers would be up to £1,000, and up to £5,000 for employers if convicted in a magistrates' court.
Individual workers could also face a £5,000 fine if their case goes to court.
The Home Secretary went on: "We look forward to welcoming Romanian and Bulgarian workers here, provided that they comply with our rules and obey the law.
"If they want to take employed work, they will need a work authorisation document.
"To get such a document, they will need to have passed the tests to get on to the highly skilled migrant programme, have secured a work permit for a skilled job, proved they are a student at a reputable college, or got a place in the quota for agriculture or food processing."