The Liberal Democrats have blocked a Home Office report recommending immigration restrictions from the European Union on the grounds of a lack of evidence.
Publication of the document was delayed because it was deemed to be "too political". It was part of the "balance of competence" review into Britain's affairs with the EU being produced by each Whitehall department.
The document did not provide sufficient evidence that tightening British borders and restricting immigration would benefit the UK, said insiders.
The row emerged after it was revealed that only two dozen Romanian migrants had entered the UK since the border restrictions were lifted at the beginning of January. According to Ion Jinga, Romania's ambassador to Britain, fears of mass immigration were unfounded.
Based on the figures recorded in the Netherlands, which also loosened immigration curbs to migrants from Romania and Bulgaria, only two dozen people have come to the UK since January 1st.
Jinga also said that British employers were welcoming migrants. Ten British companies had contacted the Romanian embassy in an effort to hire foreign workers, he said.
He said: "We advised them to advertise their job offers at Job Centre Plus.
"British companies are advertising 5,000 posts for Romanians to plug gaps in the highly skilled jobs market."
Home secretary Theresa May had claimed that the benefits system was being exploited by migrants who were abusing the EU's free movement rules.
Nick Clegg, the leader of the Liberal Democrat leader and deputy prime minister, has repeatedly come into opposition with May over the issue.
In December, he denounced the Home Office's pledge to place a cap on immigration - to slash net migration from EU countries by 30,000. Currently, 106,000 migrants enter the UK per year.
Clegg said: "My advice to the Home Office is to spend less time leaking policies that are illegal and undeliverable and spend more time delivering on the policies that we have agreed as a coalition government.
"If we pull up the drawbridge now and say to German lawyers or Finnish engineers or Dutch accountants that they can't come to work here it would be a disaster for our economy.
"The City of London would grind to a halt overnight. It would be very, very bad for British business. It would be very unwelcome to the two million Brits who live and work abroad. I don't think they'd thank the Conservative party for entering into a tit-for-tat race to the bottom."