Ed Miliband said an influx of low-skilled migrant workers will make life harder for Britons facing a cost of living squeeze as he pledged action to close a legal loophole used to exploit cheap foreign labour.
The Labour leader said he wanted to address "understandable" public fears over lifting work restrictions on Bulgarians and Romanians, conceding some UK nationals "lose out" as a result of new arrivals.
But while he backed s tronger border controls and "fair" benefit curbs, the key was ending the country's "chronic dependency on low-skill, low-wage labour", he wrote in the Independent on Sunday.
Among steps Labour would take if it won the 2015 general election would be ending the ability of unscrupulous bosses to undercut regular staff by paying agency workers lower wages, he said.
The TUC claims agency staff are paid up to £135 a week less than permanent staff despite working in the same place and doing the same job because of a loophole in the Agency Workers' Directive.
Migrants are over-represented among the estimated one million agency workers in the UK, especially in sectors such as call centres, food production and logistics.
Mr Miliband said he would work with the business sector to end the practice.
"Unless we act to change our economy, low-skill immigration risks making the problems of the cost of living crisis worse for those at the sharp end," Mr Miliband wrote four days after workers from the two eastern EU states gained unfettered access.
"When millions of workers already have low pay and poor job security in Britain and we add high levels of low skilled migration mostly from within the EU, some benefit but some lose out,"
He added: "It isn't prejudiced to believe that."
Mr Miliband has conceded that the previous Labour administration was wrong not to impose transitional controls when Poland joined the EU - with far more arriving from there than anticipated.
No official estimates have been given of the number of Romanians and Bulgarians likely to take advantage of the end of the restrictions later imposed on their countries.
But amid claims they could number up to 50,000, Prime Minister David Cameron has rushed through measures restricting access to jobless benefits and NHS healthcare.
They came in the face of demands from Tories fearful of the threat posed by the eurosceptic UK Independence Party which is tipped to push the party into third place in May's European election.
Mr Miliband wrote: " Whatever the numbers of people that eventually come here, the concern that this has highlighted is not going away."
"Our country faces a fundamental question. Britain has succeeded through the centuries as an economy that reaches outwards to the world.
"Can we maintain that tradition and meet deep public concern about immigration? I believe we can. But only if we understand the sources of anxiety and act on them.
"This cost of living crisis is the most important context for the debate about immigration. It understandably makes people more fearful of the change that immigration brings."
"Of course effective border control is important and while all the evidence is that most people come here to contribute, we need a benefits system that is seen to be fair.
"But this can only be a part of the solution because public concern about immigration is also a symptom of a deeper problem: an economy that no longer works for most working people."
He said the British exit from the EU called for by Ukip and some Tory MPs would be "a disaster" - robbing the country of high-skilled foreign workers and forcing Britons working abroad to return home.
"If people want a party that will cut itself off from the rest of the world, or pretend we should try, that is not the Labour Party.
"But if people want a party that will set the right rules to stop a race to the bottom with workers coming here from abroad, Labour is that party."
Mr Miliband repeated pledges to impose higher fines on firms that fail to pay the minimum wage, ban recruitment agencies for hiring only from abroad and force large firms hiring skilled workers from outside the EU to take on an apprentice at the same time.