The Higher Education Funding Council for England (HEFCE) found in its latest report titled 'Global Demand for English Higher Education' that there was a notable decline in the number of entrants from South Asia, particularly India and Pakistan, at both undergraduate and postgraduate levels.
The number of Indian students fell from 18,535 in 2010-11 to 13,250 in 2011-12 and further to 10,235 in 2012-13.
In 2010-11, the number of Pakistani students was 4,580, but this fell by 38 per cent to 2,825 in 2012-13.
The report said the fall in overseas students was particularly noticeable in the postgraduate market.
The reductions in entrants since 2010-11 from India was a whopping 51 per cent with 7,000 students and Pakistan was 49 per cent with 1,400 students.
The report also found a corresponding hike in students from India going to the US and Australia, indicating a clear case of flight away from the UK.
"International students enrich our universities and colleges and our society academically, culturally, and through their contribution to the economy," said HEFCE chief executive, Professor Madeleine Atkins.
"Supporting high-quality international education is a crucial part of ensuring that the UK continues to engage with, and benefit from, the increasingly interconnected world," she added.
Under Britain's current Tier 4 student visa regime, students face tougher questions about their destination, limits on their ability to work and tighter rules on their English-language capability.
Critics of the rules, including business secretary Vince Cable, have warned that they would discourage international students who are worth as much as 3 billion pounds a year to UK universities.
A spokesperson for the Department for Business, Innovation and Skills said, "International students make a huge contributionboosting our economy and enhancing our cultural life. That is why there is no cap on the number of legitimate students who can study here. By working with other countries we will continue to attract international students and promote the UK's expertise in education".
However, Nicola Dandridge, chief executive of Universities UK, said the government needs to do more to attract qualified international students to the UK.
"This should be supported by a welcoming climate for genuine international students, with visa and immigration rules that are proportionate and properly communicated," she said.