The prime minister is said to be considering pledging a two-year block on handouts for new arrivals in a bid to win back voters from Ukip.
The pressure on MrCameron was increased when Home Secretary Theresa May admitted the government was “unlikely” to meet his target of cutting net annual migration below 100,000.
In an interview with Sky News programme, Tory former cabinet minister Ken Clarke suggested that his approach was to blame for the poll surge that saw Nigel Farage’s party win the Rochester and Strood by-election last week.
“The tactics of the two major parties of government, the serious parties of government, of trying to imitate Ukip since then have actually made them more credible and has gifted them two by-elections,” Mr Clarke said.
“We have probably provoked a whole fresh rash of demands from eurosceptics in the media and in parliament for yet more demands from Europe and leaving Europe, and all this sort of thing.
Mr Clarke said talking about the economy was “a damn sight more sensible than ’how can we be rude to Europeans to cheer up Ukip?
“What we mustn’t do is keep trailing all kinds of suggestions of things we can think of that might be nasty to Europeans on the benefit front,” he said.
According to the Sunday Times, Mr Cameron’s team has been studying proposals from think-tank Open Europe that would stop EU immigrants receiving in-work benefits such as tax credits.
About 250,000 are thought to receive the income top-ups, costing the government around £1.6bn (€2bn) a year.
A report from the think-tank suggests a single Spanish immigrant on minimum wage can see their weekly income rise from £214.07 (€270.48) to £290.28 (€366.77).
But Mr Clarke said withdrawing the benefits would be “totally discriminatory”.
“You have an Englishman working alongside a Pole doing the same job, they both pay the same taxes — which among other things pay for tax credits — and the Englishman gets the tax credit and the Pole doesn’t,” he said.