Birmingham City Council is to stop accepting asylum seekers in the city.
It will withdraw from its contract with the UK Border Agency (UKBA) in June 2011, ending a five-year agreement.
Councillor John Lines, cabinet member for housing, said that with "a long waiting list for homes", the city needed all its properties "for our own people".
The UK Border Agency's regional director said it was "disappointed" at the decision.
Mr Lines said: "We have seen a sharp increase in the number of homeless people in Birmingham and we must help the citizens of this city first and foremost.
"Birmingham will continue to meet our obligation to help the government and we will work with the UKBA to help them find alternative services, possibly in the private sector, so that they can meet their objectives following the end of our contract with them."
The council - run by a coalition between the Conservatives and Liberal Democrats - is one of several local authorities in the West Midlands to have provided accommodation for asylum seekers dispersed to the region.
Other members of the consortium are Wolverhampton, Dudley and Coventry.
Wolverhampton City Council said it had also been looking at ways to "exit the contract" but had not reached a decision yet. It provides 124 homes for asylum seekers.
Coventry and Dudley, which provide 74 and 73 homes respectively, have both said they planned to continue working with the UK Border Agency but were monitoring the situation.
Birmingham City Council said that after the contract ends, it would continue to fulfil its duties in relation to housing advice and assistance and would go on providing up to 190 homes for asylum seekers until June 2011.
Sir Albert Bore, leader of the Labour group on the council, said the contract should not be terminated and added that a "sensible" figure should have been arrived at with the UKBA.
"I accept that the housing department is under stress with a big waiting list, an increased number of homeless and asylum seekers to cater for, but that should not have led to the council refusing to provide accommodation for a reasonable number," he said.
The UK Border Agency, which is responsible for controlling migration, said it was disappointed by Birmingham's decision to withdraw from the consortium.
Regional director Gail Adams, said: "The consortium's existing contract will continue until June next year."
A spokesman for ASIRT, a Birmingham-based asylum seeker support group, said the decision was politically-motivated.
Salman Mirza from ASIRT said the decision had been "political and a red herring."
He said the city council did not help asylum seekers because the money came from central government.
"It is separate funding. The council are making platitudes," he said.