Immigration officers have temporarily stripped London Metropolitan University of its "highly trusted sponsor" status, meaning it cannot finalise applications from foreigners, who last year made up nearly half its student numbers.
The move could have a significant impact on the university's finances because the suspension has come at the peak period of student recruitment.
Concerns are thought to centre on how data about non-EU students is collected and stored by the institution, which has more than 22,000 students including 10,000 from abroad.
There were also worries about how the university recorded overseas students' ability to speak English and their attendance at courses - both of which require minimum levels to qualify for a student visa.
Problems were identified in two recent audits by the UK Border Agency, which suspended London Met from its list of "Tier 4 Highly Trusted Sponsors".
Malcolm Gillies, vice-chancellor of the university, said: "London Met has worked hard over the last year to rectify previous inadequacies, conducting three of its own audits.
"It will instantly rectify any residual deficits in its current practice.
"The university remains a highly trusted sponsor, but its licence is suspended while we resolve remaining issues."
He added that the university will continue to accept applications from international students over the summer.
However, unless its sponsorship status is restored foreign students will be unable to obtain visas and travel to Britain.
London Metropolitan University was created in 2002 by the merger of Guildhall University - formerly City of London Polytechnic - and the University of North London, also a former polytechnic.
Its alumni include Vic Reeves, the comedian, and Zandra Rhodes, the fashion designer.
According to latest figures from the Higher Education Statistics Agency, London Met had an income of £157.7 million in 2010-11, with 16,550 undergraduates and 6,285 postgraduates.
It has 1,855 staff, of whom 885 are academics.
London Met is only the second university known to have lost its highly trusted sponsor status since rules were tightened by the Coalition last year.
Teesside University was suspended from the list in February but it was reinstated in May.
