EU migrants are to be barred from claiming out-of-work benefits, such as Jobseeker's Allowance, for their first three months in the UK.
Those who do go on to claim the benefits will now only be able to get payments for a maximum of six months.
Prime Minister David Cameron announced the shake-up in a newspaper article amid concerns over a possible surge in Romanian and Bulgarian migrants in January.
He also said migrants caught begging or sleeping rough could be deported.
Writing in the Financial Times, Mr Cameron said he "shared concerns" of many of his MPs over the ending of restrictions on Romanian and Bulgarian workers.
Workers from the two countries will soon get the same right to work in the UK as other EU migrants, with some critics suggesting tens of thousands could arrive each year.
Dozens of Conservative MPs want the Government to ignore EU law and extend existing controls until 2018.
Mr Cameron said: "We are changing the rules so that no one can come to this country and expect to get out-of-work benefits immediately; we will not pay them for the first three months.
"If after three months an EU national needs benefits - we will no longer pay these indefinitely.
"They will only be able to claim for a maximum of six months unless they can prove they have a genuine prospect of employment.
"We are also toughening up the test which migrants who want to claim benefits must undergo.
"This will include a new minimum earnings threshold. If they don't pass the test, we'll cut off access to benefits such as income support. Newly arrived EU jobseekers will not be able to claim housing benefit."
Nick Clegg has welcomed the 'sensible and reasonable' tougher rules Currently, some immigrants can access Jobseeker's Allowance (JSA) within a month of arrival in the UK, according to Downing Street aides.
Mr Cameron said migrants found begging or sleeping rough could be deported and barred from re-entry for 12 months "unless they can prove they have a proper reason to be here, such as a job".
Other measures - to try to prevent undercutting of British workers - include fines of up to £20,000 for firms that pay below the minimum wage.
Downing Street says that the six-month limit could be brought in under existing legislation but the three-month delay on claiming benefits would need legislation, which is to be brought forward to early in the new year.
Mr Cameron also called for tighter rules over the right of EU citizens to move to any member country.
He said one option would be to "require a new country to reach a certain share of average EU GDP per head before full free movement was allowed".
"Individual member states could be freed to impose a cap if their inflow from the EU reached a certain number in a single year," he added.
Deputy Prime Minister Nick Clegg said the Liberal Democrats were behind the tougher rules and called them "sensible and reasonable reforms".
"The right to work does not automatically mean the right to claim," Mr Clegg said.
Nigel Farage, the leader of the UK Independence Party, said Mr Cameron's proposals would do nothing to prevent an influx of new migrants from Bulgaria and Romania.
"Under his proposal somebody can come here on January 1 from Romania and within 12 weeks be entitled to unemployment benefit. I think that's outrageous," he told the BBC Radio 4 Today programme.
"I wouldn't call that tough. I would say that we are still being far too generous even if he does have the guts to put this in place.
"This does nothing to stop an unrestricted flow of a very large number of unskilled people coming into Britain at a time when we have a million young unemployed people."
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