Downing Street has defended industry minister Margaret Hodge's right to call for British residents to have priority over council housing allocations.
Mrs Hodge said allocation should take account of citizenship, residence and national insurance contributions.
A No 10 spokesman said the government recognised it was an issue in some places, adding that the key was to keep boosting the amount of social housing.
But Labour MP Keith Vaz said many would find Mrs Hodge's comments "offensive".
Mrs Hodge, who called for the change in a Sunday newspaper article, said the rule change was needed to "promote tolerance rather than inviting division".