A fall in net migration to the UK was overshadowed today as a group of influential MPs reacted angrily to the Government's refusal to remove foreign students from its target.

A net flow of 163,000 migrants came to the UK in the year to June 2012, down from 247,000 in the previous year, the Office for National Statistics (ONS) said.

The coalition Government hailed its "tough reforms" but was immediately scalded by the Business, Innovation and Skills Committee for rejecting calls to take international students out of its target to reduce non-EU migration to the tens of thousands by 2015.

"The Government should listen, think again and change course," the committee said.

The decline in net migration was driven by a drop in the number of immigrants coming to Britain, which fell from 589,000 to 515,000, while the number of migrants leaving the country rose from 342,000 to 352,000.

The most common reason for migrating to Britain remains study, the ONS said, but this was also declining "significantly".

Some 197,000 foreign students arrived in the period, down 17% or 42,000 from 239,000 in the previous year, while the number of visas issued for study - 209,804 - was 20% lower.

In a report last year, the BIS Committee said the inclusion of international students in net migration figures risks undermining a world-class export market.

But in an official response released yesterday, the Home Secretary said all the UK's major competitors include students in their net migration figures.

The BIS Committee said: "The Government's response was late, woefully short on detail and fails to take account of recent developments.

"It seeks to underplay the urgency of the problem and thus excuse the failure to act decisively to address this serious matter."

Sponsored visa applications rose 3% in the university sector, but fell 62%, 69% and 14% for further education, English language schools and independent schools respectively.

Sarah Mulley, associate director at think-tank Institute for Public Policy Research (IPPR), said the Government's progress towards its target was being driven by falling numbers of international students - but warned this will only have a short-term effect.

She added that today's falls could be reversed later on and the target could not be achieved without "radical changes that go far beyond the student visa regime".

The total number of visas issued fell 10% or 57,106 to 507,701 in the year ending December 2012 - the lowest 12-monthly total since comparable data was first published in 2005.

There was a "significant" decrease in the number of immigrants arriving from New Commonwealth countries, which include African nations such as Botswana, Kenya and Malawi and Indian subcontinent countries such as Bangladesh, India and Pakistan, Some 117,000 immigrants from New Commonwealth countries arrived in the UK in the year to June, down 30% or 51,000 from 168,000 in the previous year.

A total of 62,000 immigrants arrived from countries which joined the EU in 2004, including Poland, the Czech Republic and Lithuania, down 27% or 24,000 from the previous year.

And 173,000 people migrated to the UK for work, which was down 10% from 194,000 in the previous year.

Chris Bryant, shadow immigration minister, said: "Illegal immigration is still getting worse, international graduate students are being discouraged, yet more people are coming as short-term students with fewer checks and UK citizens are being driven away."

The figures come as the Government toughens its stance on immigration with a range of new measures as it aims to bring down net migration to the tens of thousands.

UK Border Agency officials will conduct interviews with more than 100,000 student visa applicants from "high-risk" countries outside the EU to crack down on bogus students.

And a "genuine entrepreneur" test has been introduced to tackle the rising number of foreign nationals attempting to enter Britain by fudging their bank accounts and setting up fake businesses.

Immigration Minister Mark Harper said: "Our tough reforms are having an impact in all the right places - we have tightened the routes where abuse was rife and overall numbers are down as a result.

"But sponsored student visa applications for our world-class university sector are up and the numbers of skilled people being sponsored by UK employers in sectors such as IT and science have also increased.

"We will continue to work hard to bring net migration down from the hundreds of thousands to the tens of thousands by the end of this Parliament and to create a selective immigration system that works in our national interest."