http://www.bbc.co.uk/news/education-19419395London Metropolitan University has had its right to sponsor students from outside the EU revoked, and will no longer be allowed to authorise visas.
The UK Border Agency says student attendance is not being monitored and that many have no right to be here.
The university said it would be challenging UKBA's claims.
A task force has been set up to help students affected by the decision which means some 2,000 overseas, non-EU, students have 60 days to find an alternative institution to sponsor them or face deportation.
Announcing the move on Wednesday night, the UK Border Agency said London Metropolitan University had "failed to address serious and systemic failings" identified six months ago.
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Analysis: Overseas students in the UK
With increased competition and pressure on funding, many UK universities have looked to the lucrative overseas student market.
This is because overseas, non-EU, students pay higher fees than home students.
In 2010-11, there were a total of 48,580 overseas undergraduates and 79,805 overseas postgraduates.
With regard to the key UK undergraduate population, it represents about 11% of the total.
But this translates to 32% of universities' fee income.
Overall they contribute an estimated £5bn a year to the economy in terms of fees and wider spending.
Universities UK says this could increase to £16.9bn by 2025.
But it has warned that moves to tighten visa rules will hit the ability of UK universities to recruit foreign students.
The NUS and academics union, UCU, also fear that taking such a tough stance with London Metropolitan will send a damaging message to bona fide potential students eyeing UK universities from abroad.
However, the UKBA says London Metropolitan has failed to carry out basic procedures tracking the status and activities of its overseas students.
The Higher Education Funding Council for England said it was an "unprecedented situation which relates only to London Metropolitan University" - which has a total of 30,000 students.
It added: "It will not affect existing or future international students at other universities. No other UK university has had its licence to sponsor international students revoked, and UKBA's decision does not in any way reflect concern about licensing arrangements at other universities in the UK."
The university's Highly Trusted Status (HTS) was suspended last month while the UKBA examined alleged failing, preventing it from being allowed to recruit overseas students.
Immigration Minister Damian Green said London Metropolitan University had failed in three particular areas:
More than a quarter of the 101 students sampled were studying at the university when they had no leave to remain in this country
Some 20 of 50 checked files found "no proper evidence" that the students' mandatory English levels had been reached
And some 142 of 250 (57%) sampled records had attendance monitoring issues which meant it was impossible for the university to know whether students were turning up for classes or not.
Professor Malcolm Gillies, the university's vice chancelllor, described the claims made against the institution as "not particularly cogent" and said it would be disputing them.
He said: "I am not going to say that we accept what is stated in the letter sent to us revoking our licence.
"We only received it at 8pm last night and are currently doing a full analysis, working together with the best lawyers in the country.
"I would go so far as to say that UKBA has been rewriting its own guidelines on this issue and this is something which should cause concern to all universities in the UK."
'Panic and heartbreak'
The university added it had already started to work with the UKBA, Hefce, the NUS and its own students' union to tackle the issues.
Although there have been other suspensions, no other UK university has been fully stripped of its ability to recruit overseas students.
The NUS has contacted Prime Minister David Cameron and Home Secretary Theresa May to "express anger at the way that decisions have been made in recent weeks and to reiterate the potentially catastrophic effects on higher education as a £12.5bn per year export industry for the UK".
NUS president Liam Burns said: "This decision will create panic and potential heartbreak for students not just at London Met but also all around the country.
"This heavy-handed decision makes no sense for students, no sense for institutions and no sense for the country. This situation and the botched process by which the decision was arrived at could be avoided if international students were not included in statistics of permanent migrants."
Mr Burns added the decision could have been limited to future students rather than covering existing ones.
'Last resort'
But the UKBA said allowing London Metropolitan University to continue to sponsor and teach international students "was not an option".
It said it had been working with the university since it identified failings six months ago.
It added: "These are problems with one university, not the whole sector. British universities are among the best in the world - and Britain remains a top-class destination for top-class international students.
"We are doing everything possible, working with Universities UK, to assist genuine students that have been affected."
Universities Minister David Willetts has announced a task force to help overseas students affected by the decision, which will include UKBA and the NUS.
He said: "It is important that genuine students who are affected through no fault of their own are offered prompt advice and help, including, if necessary, with finding other institutions at which to finish their studies."
But Universities UK President Professor Eric Thomas said there were alternative ways of addressing UKBA's concerns and that the "revocation of a university's licence should only be a decision of last resort".
It added that the move would cause anxiety and distress to many legitimate international students.
University and College Union warned that the move would have an impact on future recruitment of foreign students.
Its general secretary Sally Hunt said: "No matter how this is dressed up, the damaging message that the UK deports foreign students studying at UK universities will reach all corners of the globe."
Topic: London Metropolitan University students fear deportation