Home Secretary Theresa May said the "radical" clampdown would close fake colleges and block entry for those who cannot speak good English.
There will also be tougher restrictions on non-EU students staying in the country after their course finishes - including a rule that they must find a job that pays at least £20,000 a year.
Mrs May told MPs that while the coalition wanted to attract the "brightest and best" to the UK, the visa system became "broken" under Labour.
"This package will stop the bogus students, studying meaningless courses at fake colleges," she said.
"It will protect our world-class institutions. It will stop the abuse that became all too common under Labour.
"And it will restore some sanity to our student visa system."
She said she expected the measures would reduce the number of student visas issued by 70,000-80,000 annually - equivalent to a 25% fall.
Officials indicated the number of dependants coming to the UK was likely to go down by around 20,000.
The crackdown is part of David Cameron's drive to bring net immigration down to tens of thousands annually by 2015.
But there have been concerns - including from Business Secretary Vince Cable - that it could hit revenues in the UK's education sector.
Under the reforms, the minimum proficiency in English for degree-level students is rising from B1 to B2 - roughly equivalent to AS-level.
The standard will be assessed with secure English language tests for most institutions, although universities will be permitted to make their own assessments.
Despite university vice-chancellors suggesting tougher language requirements may be too strict for top-quality maths and science candidates, there will be exemptions only for "truly exceptional" cases.
For courses below degree level, individuals will now need to have reached B1 proficiency.
UK Border Agency (UKBA) officers will also be given discretion to refuse entry to students who cannot speak English without an interpreter, or who are clearly below the minimum standards.
Officials claimed it was "common" to be faced with students with very poor language skills, although they did not give any estimate of how many could be turned away at border controls.
"Let me be clear," Mrs May said. "You need to speak English to learn at our education establishments. If you can't, we won't give you a visa."
Mrs May said the changes would ensure that study, rather than work, was the "main purpose" of those granted visas.
"We will end permission to work during term-time from all students other than those at university and publicly-funded further education colleges," she said.
"Students at public sector further education colleges will be allowed to work for 10 hours per week and students at university for 20 hours per week.
"We will reduce the amount of work that can be done on work placement courses for non-university students from 50:50 as now, to two-thirds study, one-third work."
The Home Secretary also set out tighter restrictions on how long students could stay in the UK, before and after the end of their courses.
"Too many students who originally come on short courses have been staying here for years and years by changing courses, often without showing any tangible academic progress," she said.
"We will limit the overall time that can be spent on a student visa to three years at lower levels, as now, and five years at higher levels."
She stressed there would be exemptions for those on longer courses such as medicine and veterinary science.
The Government has stopped short of scrapping the Post Study Work scheme, in an apparent concession to those who argued the UK should be looking to retain skilled individuals.
But the scheme will be closed for low-skilled individuals from April next year - and Mrs May held out the possibility of a cap being put on numbers in future.
"In future, only those graduates who have the offer of a skilled graduate-level job from an employer who is licensed by the Border Agency will be allowed to stay," she said.
"Post Study migrants must be paid at least £20,000 or the appropriate rate for the occupation, as set out in the relevant code of practice, whichever is higher.
"This will prevent employers from recruiting migrants into skilled occupations, but paying them less than the going rate."
She added: "We will not impose a limit on this group this year, but we will keep this position under review."
Currently students on courses of six months or more can bring dependants with them. But Mrs May said: "We will remove this right for all but postgraduate students at universities and Government-sponsored students."
Mrs May said the Government's proposals were "unashamedly targeted at the least trustworthy institutions".
All educational establishments sponsoring foreign students must have joined the Highly Trusted Sponsor scheme by April next year, and be vetted by an inspectorate such as Ofsted or the Quality Assurance Agency.
"Our proposals protect the interests of our world class universities, they protect our leading independent schools and public FE colleges, and, ultimately, they are in the best interests of legitimate students," Mrs May added.
Business Secretary Vince Cable - who warned earlier this month that a "good answer" was needed on student visas to protect revenues in the education sector - welcomed the package.
"Higher and further education is a major success story for the British economy," he said. "Today's announcement secures its future as a growing export industry and means that legitimate universities and colleges remain free to recruit overseas students."
Dr Wendy Piatt, Director General of the Russell Group of universities, said international higher education students were worth at least £5.8 billion to the UK economy each year.
"Today's announcements give more assurance that universities will be allowed to continue to sponsor the best-qualified international students both at degree and other levels," she said.
"However, much will depend on the how these proposals are implemented at an operational level and we shall be monitoring very closely their effects on our universities."
She also welcomed Mrs May's "recognition of the value of being able to grant the best international UK university graduates the opportunity to work for a short period in highly-skilled jobs".
"But it will be important to ensure that the new route for bright international students to work after graduation operates as efficiently as possible on the ground," Dr Piatt added.
"Without the ability to offer short-term work opportunities of this nature, we would fail to attract some of the world's brightest students who would choose to study elsewhere."
Professor Les Ebdon, chair of education think-tank million+ and Vice-Chancellor of the University of Bedfordshire, said: "There is no dispute that the accreditation of private colleges should be improved.
"It is disappointing that the Home Secretary has stated that she expects international student numbers to fall but this is only an assessment and today's announcement is a clear signal that the UK is still open for business.
"The clarification that there will be no restrictive number cap on international students will help universities promote Britain as a destination of choice for non-EU students and support much needed economic growth."
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