A version of the Fresh Talent Initiative, which allows foreign graduates to live and work in Scotland for two years, will be launhced in England. The move was announced last week by Chancellor Gordon Brown and follows complaints by universities in England that the Scotland-only programme is discriminatory.
Fresh Talent, launched this year, attempts to lure non-EU students to Scottish universities by offering short-term residency rights upon graduation.
The policy was devised by Scotland's First Minister Jack McConnell as a way of stemming Scotland's declining population by boosting the number of skilled immigrants in the country.
McConnell last month hailed the policy as a major achievement, revealing that almost 600 overseas students had successfully applied for a two-year visa extension under the scheme.
The figures showed that more than 10% of eligible foreign students extended their visas under the policy.
But the scheme annoyed university principals in England, who felt Scotland was being given a special advantage to woo students in a lucrative international market.
Higher education chiefs complained to civil servants about the two-tier visa system and questioned whether Fresh Talent was legal under EU law.
They also lobbied Whitehall for Scotland to lose its preferential status and demanded that the controversial scheme apply to all British universities.
Now the Home Office has agreed to the universities' request by offering them a scheme that is based on the Fresh Talent model.
The Chancellor's pre-Budget report last week announced a programme whereby selected international students will be allowed to work in the UK for up to 12 months after graduation.
The policy, which wasn't mentioned in Brown's speech, will benefit up to 50,000 students by targeting under-graduates and post-graduates.
One Scottish higher education source told the Sunday Herald: "The universities south of the border lobbied for this and they got it. It will chip away at our advantage."
The Home Office measure is a blow for McConnell because he once said of Fresh Talent that "Scotland is the only part of the UK to have this flexibility". The success of the scheme in part depends on Scottish universities being able to offer a distinctive scheme for overseas students.
It is also the latest setback for a policy that has been slammed by critics for its perceived lack of ambition.
McConnell claimed in February 2004 that Fresh Talent would attract around 8000 graduates to Scotland every year, a target later dropped by a civil servant who said the figure was "indicative".
The initiative was also criticised in May when the government stated that it was a pilot, rather than a unique policy for Scotland. Duncan McNiven, the registrar general, piled further pressure on the scheme by saying that Scotland's population problem would not be solved by "heaping in more migrants".
The CMU group, which represents post-1992 universities, welcomed the roll-out of Fresh Talent. "The proposal that international students who are qualified in shortage areas will be allowed to work in the UK for up to 12 months will go some way to matching the Fresh Talent initiative in Scotland, which has proved very successful in attracting international students and which we have lobbied to be extended," said CMU chief executive Pam Tatlow.
But a spokesman for Universities Scotland said Fresh Talent was an "outward-looking scheme" that was being eroded.
"This advantage is being nibbled into and it is essential that universities, along with all other public agencies in Scotland, work twice as hard to ensure that we punch above our weight," he said.
SNP deputy leader Nicola Sturgeon said the Westminster move showed that Scotland's needs were not being catered for.
"This shows that Scotland needs to control immigration. We don't have much of a competitive advantage and Fresh Talent is only a pilot scheme," she said.