The University of Otago will raise the cap on international student numbers from 12 per cent to 15 per cent from next year as it looks to boost international enrolments.
University international pro-vice-chancellor Prof Sarah Todd said lifting the cap would allow more than 500 extra international students to study at Otago.
"We are fully committed to the new 15 per cent cap and at the same time we are also aware of the need to deliver a quality education and lifestyle to every overseas student who comes to Otago and Dunedin. Each student must feel welcomed and valued," she said.
Tertiary Education Minister Steven Joyce said the move was a "step in the right direction".
"Lifting the number of international students in Dunedin will bring increased revenue to the university and allow it to invest more in teaching and research quality for the benefit of all students.
"In short, this move will be good for the university, good for the city, and good for the country."
Boosting the numbers of international students at Otago was important if the Government was to achieve its "ambitious goal" of doubling the economic value of New Zealand's international education sector to $5 billion over the next 15 years, he said.
Prof Todd said it was difficult to predict the level of growth in international student numbers under the new cap given the ongoing global financial crisis, the strong New Zealand dollar and strong competition from other regions.
However, planning was already under way for various initiatives, including new postgraduate qualifications that were expected to be attractive to international students.
The move to increase the cap comes after Mr Joyce earlier this month called on the university to do more to attract overseas students and questioned the 12 per cent cap on international students, which he called "very low".
Responding by way of an opinion piece, Prof Todd said a recommendation to raise the cap to 15 per cent had been made by senior management "some weeks ago".
The university has also opted to keep a requirement that no more than 25 per cent of students come from any one country.
"We value the diversity our current system offers because it is important that our domestic students learn more about the wider world from international students," she said.