It is urging employers to "move away" from relying on "cheap labour" from Europe and invest in retaining staff and developing automation technology.
The Home Office said EU and non-EU citizens coming to the UK would be treated equally after UK-EU free movement ends on 31 December.
Labour said the "hostile environment" will make it hard to attract workers.
But Home Secretary Priti Patel said the new system would mean "the brightest and the best will be able to come to the United Kingdom".
The government, which said it was aiming to reduce overall migration to the UK, wants a "points-based" immigration system - as it promised in its election manifesto.
Under the scheme, overseas workers who wanted to come to the UK would have to speak English and have the offer of a skilled job with an "approved sponsor".
They would be awarded 50 points if they fulfil these criteria.
'Adapt and adjust'
In total, immigrants would have to reach 70 points to be able to work in the UK, with points also being awarded for qualifications, the salary on offer and working in a sector with shortages.
But the government said it would not introduce a route for lower-skilled workers, urging businesses to "adapt and adjust" to the end of free movement between EU countries and the UK.
"It is important employers move away from a reliance on the UK's immigration system as an alternative to investment in staff retention, productivity and wider investment in technology and automation," it said.
Instead, it said the 3.2 million EU citizens who have applied to continue staying in the UK could help meet labour market demands.
The government also pointed to a quadrupling of the scheme for seasonal workers in agriculture to 10,000, as well as "youth mobility arrangements", which allow 20,000 young people to come to the UK each year.
While the CBI welcomed some of the proposals, it said some firms would be "left wondering how they will recruit the people needed to run their businesses".
The business lobby group's director general, Carolyn Fairbairn, said: "Firms know that hiring from overseas and investing in the skills of their workforce and new technologies is not an 'either or' choice - both are needed to drive the economy forward."
The Royal College of Nursing raised concerns the proposals will "not meet the health and care needs of the population", while Unison assistant general secretary Christina McAnea said the plans "spell absolute disaster for the care sector".
The UK Homecare Association described the lack of provision for low-paid workers in the proposals as "irresponsible", with a spokesman saying they were "dismayed" by the government's decision.
"Cutting off the supply of prospective care workers under a new migration system will pave the way for more people waiting unnecessarily in hospital or going without care," they added.
Meanwhile, National Farmers' Union president Minette Batters raised "serious concerns" about the "failure to recognise British food and farming's needs" in the plans.
And the Food and Drink Federation spoke of concerns about bakers, meat processors and workers making food like cheese and pasta not qualifying under the new system.
The government's proposed immigration system represents a balancing act - broadening the base of skilled labour while restricting the flow of those seeking lower-skilled jobs.
People wanting to come to the UK from outside the EU will find rules are being relaxed, such as scrapping the cap on skilled workers or the drop in minimum salary.
But for EU migrants who are used to moving freely between Britain and the continent, the new regime will be something of a shock.
Visitors can come for six months without a visa, but they won't be able to work, those with skills must have a job offer and clear the 70 points hurdle, and there'll be no work permits for migrants prepared to do menial jobs in restaurants, hotels, care homes and food processing plants.
There is some flexibility in the new structure. But the question is, will it be enough to prevent labour shortages and companies taking their business elsewhere?
Under the new plan, all migrants will only be entitled to access income-related benefits until after indefinite leave to remain is granted, usually after five years.
Currently, EU nationals in the UK can claim benefits if they are "economically active". Non-EU citizens become eligible for benefits when they are granted permanent residence, which usually requires five years of living legally in the UK.
Following recommendations from the Migration Advisory Committee (MAC), the salary threshold for skilled workers wanting to come to the UK would be lowered from £30,000 to £25,600.
The independent advisory body argued that lowering the threshold would help recruit teachers and skilled NHS staff.
Unlike the current system, applicants would also be able to trade points.
Those earning less than £25,600, but more than £20,480, could still apply for visas if they had a job in a "specific shortage occupation" or a PhD relevant to the job.
A list of shortage occupations would be kept under review by the MAC, the government said.
Jobs currently on the MAC's Shortage Occupation List include civil engineers, medical practitioners, nurses, psychologists and classical ballet dancers.
Shadow home secretary Diane Abbott said the salary threshold system would "need to have so many exemptions, for the NHS, for social care and many parts of the private sector, that it will be meaningless".
She added: "Ultimately, it will also be very difficult to attract the workers we need at all skill levels while the Tories' hostile environment is in place. It needs to go."
Under the new plan, there would no longer be an overall cap on the number of skilled workers who could come into the UK - one of the areas praised by the CBI.
Following recommendations from MAC, the definition of skilled workers would also be expanded to include those educated at A-level, not just at graduate level, as was previously the case.
But waiting staff roles would be removed from the list of skilled occupations, while new additions would include carpenters, plasterers and childminders.
To study in the UK, overseas students would need the offer of a place at an educational institution, have to know English, and be able to show they can support themselves.
Changes to the system would be implemented through an immigration bill needing approval from MPs and peers to come into force.
Shadow immigration minister Bell Ribeiro-Addy told the BBC's Newsnight: "I feel like people have been duped a bit. We were told this was an Australian style points-based system.
"The Australian system is meant to encourage migration across sectors. I know that they don't want to do that, but why are you calling it one thing when it's another?"
Liberal Democrat home affairs spokeswoman Christine Jardine said the proposals were based on "xenophobia".
The SNP's immigration spokesman, Stuart McDonald called them a "half-finished and disastrous one-size-fits-no-one policy".
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