The verdict was delivered in a government response to MPs on the BIS select committee, one of five Parliamentary committees to call for overseas students not to be counted in the government's net migration limits.
The response says: "The Home Office and Department for Business, Innovation and Skills have carefully considered the recommendations of the report and the Government response is below" - suggesting that the Home Office has conclusively won out against BIS, whose ministers had been in favour of withdrawing students from the count.
Universities UK had lobbied hard for the change, which would spare universities any impact from the government's drive to reduce net migration to the "tens of thousands" by 2015.
"All the UK's major competitors include students in their figures for net migration," the government response says.
It adds that the "UK will continue to comply with the international definition of net migration", in which students are classed as migrants.
However, the response has led to angry reactions from the BIS committee chair Adrian Bailey and UUK.
Mr Bailey criticised the government for failing to offer anything new. "Our report called for urgent action," he said. "The government replies with a response that is almost four months late. This is not acceptable."
Meanwhile Eric Thomas, president of UUK, said despite Prime Minister David Cameron's recent comments on a trip to India about the "importance of international students to the UK", UUK was "concerned that the government's response to the select committee report today is not justified by the evidence".
He added: "The government's decision to ignore the recommendations of five parliamentary committees that students should not be included in the government's net migration target is disappointing."
The government also risks provoking disagreement with its claim about the UK's major competitors including overseas students in their figures. Nicola Dandridge, the UUK chief executive, had noted the difference between the UK and its competitors on this score in her evidence to the BIS select committee.
She told MPs in June 2012: "For the purpose of policy development, can we treat international students as temporary migrants, not permanent migrants? That is what all our competitors do, the US, Canada and Australia. They operate by the UN definition in terms of UN data returns, but for the purposes of policy development, to a quite stark degree they distinguish between permanent and temporary migration, and international students are always regarded as temporary migrants."
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