Theresa May has indicated she will fight a proposal to give residency rights to EU citizens during the transition period after Brexit.
She said there had to be a difference between those arriving after the UK leaves and those who came before.
She also sought to reassure Tory MPs worried about the length of transition.
The European Parliament’s Brexit lead, Guy Verhofstadt, responded by telling The Guardian: “Citizens’ rights during the transition is not negotiable.”
He said that “for the transition to work” there could not be “two sets of rights for EU citizens”.
Earlier this week, the EU set out what it was prepared to offer the UK, saying it expected the transition to last from the day of the UK’s departure on 29 March 2019 to 31 December 2020.
But reports that it could be extended have dismayed some Brexit-supporting MPs.
Speaking during her trade trip to China, Mrs May insisted such an “implementation period” would last about two years.
“We are not talking about something that is going to go on and on… we’re leaving the European Union. There is an adjustment period for businesses – and indeed government – for changes that need to be made,” she said.
Fox urges Tories to focus on the big picture
By Laura Kuenssberg, political editor
International Trade Secretary Liam Fox is in China and wants his restive colleagues at home to focus on the big picture.
Listing the number of deals that have been done already this week during the prime minister’s visit he told me that building levels of trade with China is a real “success story”.
No 10 is confident that by the end of this marathon trip well over £9bn of new contracts will have been secured – such a high profile political investment edging deals over the line.
Dr Fox accepts it will take some to get trade deals done in the longer term. The UK will be limited not just before Brexit, but also during the transition period, in how much can get done.
In December, the two sides agreed a deal setting out the rights of EU citizens in the UK and British expats on the continent.
All EU nationals who have been in the UK for more than five years will be expected to be granted settled status, giving them indefinite leave to remain with the same access to public services as now.
Those who have been resident for a shorter period but who arrive before Brexit cut-off date, currently expected to be 29 March 2019, will also be able to stay and get settled status once they have been in the UK for five years.
At the time, Downing Street said it envisaged anyone arriving after Brexit being able to continue to live, work and study in the UK during the transition period but that they would need to register, and the future immigration rules would have to be agreed as part of the wider transition negotiations.
But the EU has since said it expects existing rules on freedom of movement – including the path to permanent residency – to apply in full until the end of the transition phase, which is currently expected to be 31 December 2020.
Mrs May, who is on the second day of a three-day trade trip to China, said she would contest the issue of long-term residency rights when transition negotiations begin in earnest next month.
“When we agreed the citizens’ rights deal in December we did so on the basis that people who had come to the UK when we were a member of the EU had set up certain expectations,” she said.
“It was right that we have made an agreement that ensured they could continue their life in the way they had wanted to – now for those who come after March 2019 that will be different because they will be coming to a UK that they know will be outside the EU.
“I’m clear there is a difference between those people who came prior to us leaving and those who will come when they know the UK is no longer a member.”
Alp Mehmet, vice chair of campaign group Migration Watch UK told BBC Radio 4’s Today programme: “What shouldn’t happen and what people don’t expect to happen is that those arriving during the transition period can acquire the right to remain here indefinitely.”
But MEP Mairead McGuinness, vice-president of the European Parliament, told the programme there was a “total illogicality” as the EU “will insist that the rights of UK citizens in that transition period will remain exactly as they are today” and she said the agreement around rights would apply at the end of the transition period.
The BBC’s political editor Laura Kuenssberg, who is travelling with the prime minister, said Mrs May was showing she was willing to push back against the EU amid discontent on the Conservative benches.
Labour MP Peter Kyle said anything that caused uncertainty for EU workers in the UK was bad for business.
Meanwhile, government analysis has emerged suggesting the cost of cutting EU migration would be much greater than the benefits of a US trade deal.
BuzzFeed News has claimed government studies on the economic impact of Brexit say reducing migration from the bloc into the UK would nullify the benefits of any trade deal struck with Washington.
Ministers agreed on Wednesday to let MPs see another leak from the same impact analysis which suggests the economy would be worse off as a result of a number of possible Brexit scenarios.
In response to the fresh leak, the government said the UK would forge new and ambitious trade deals but remain an “open and tolerant country” while ensuring there is control of migrants.
In another development, the government’s flagship EU (Withdrawal Bill) cleared its first hurdle in the House of Lords as it passed its second reading and former Labour minister Lord Adonis withdrew an amendment calling for a referendum on the final deal.