Gordon Brown has rejected calls by a senior parliamentary committee for a cap on immigration, claiming that the move would jeopardise the British economy.

Speaking at his monthly press conference, the Prime Minister said that the Government's proposed points system would ensure that the immigrants needed by specific, key sectors were allowed into the UK, which a cap would prevent.

The Prime Minister added that setting an "explicit target range" for migrants, as the House of Lords committee had today demanded, would also be ineffective because it could not legally apply to the European Union, from where much of the recent influx has come after the accession of eastern European member states.

Mr Brown spoke amid a political row over the report by an all-party Lords' economic affairs committee, which called for an "explicit target range" to be introduced on immigration. The peers' report also rejected the Government’s claim that immigration is needed to prevent labour shortages as "fundamentally flawed".

While promising to control the number of newcomers, the government has pointed out that controlled immigration added £6 billion to the economy in 2006. “Most people in the City of London know they have benefited very substantially,” the Prime Minister told his monthly Downing Street press conference.

“Not just from the inward investment that’s coming from international companies, but the number of key workers who are coming to join them and are making a huge contribution to the British economy."

Adding that a points system would ensure that Britain gets the influx it needs in specific skills areas, he said: "The points system is looking at the different occupations and skills that are needed in this country. We are achieving exactly the same thing as the House of Lords is suggesting, by this route."

The findings of the inquiry were also opposed by Keith Vaz, the chairman of the House of Commons' influential home affairs committee. Its responsibility is to scrutinise the Home Office's policies. "If you take away the immigrants from the NHS and you take away the GPs from our doctors surgeries, the health service would simply collapse," Mr Vaz said.

Business figures emphasised the economic benefit of migration with Chris Hannant, head of policy at the British Chambers of Commerce, saying: "Many businesses are reliant on migrant workers because increasingly large numbers of British people do not have either the right skills or aptitude for work."

The peers' report was, however, backed by immigration campaigners, while opposition politicians claimed it showed that the Government had failed to get a grip on the numbers coming into the UK.

Chris Huhne, the Liberal Democrat home affairs spokesman, said: "This report makes it clear that the Government has completely lost track of the number of people who live in this country."

His comments were echoed by David Davis, the Shadow Home Secretary, who said the committee of "distinguished peers has demolished the Government’s case" for immigration.

Sir Andrew Green, chairman of Migrationwatch, which campaigns against mass immigration, said the report was "a watershed", adding: "A heavyweight committee of Parliament has torn to shreds the Government’s economic case for the massive levels of immigration which they have actively encouraged."

The study was conducted by two former chancellors and several other former Cabinet ministers, and found that certain groups in Britain - the low-paid, some ethnic minorities and some young people looking for a foot on the job ladder - may have suffered because of competition from immigrants.

It said ministers should set an "explicit target range" for immigration and set the rules to keep within that limit. It also raised the prospect of cutting the number of partners and other family members allowed to settle in Britain because a relative is already here.

The peers also rejected the Government’s claim that immigration is needed to prevent labour shortages as "fundamentally flawed". They gave warning that the much-trumpeted new points-based immigration system carried a "clear danger of inconsistencies and overlap".

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