The government's limit on the number of former Gurkhas allowed to settle in the UK is "shameful", Liberal Democrat leader Nick Clegg has said.
Two concessions on the right of former Gurkhas to settle in the UK have been made by the government in an effort to avert a potential Commons defeat.
He said the policy broke the "moral principle" of allowing soldiers who fight for the UK to live there.
Gordon Brown came under fire at PM's questions, with Lib Dem leader Nick Clegg calling the policy "shameful".
Prime Minister Gordon Brown said he wanted "justice" for Gurkhas but stressed that any changes to policy had to be affordable.
Many Labour MPs were expected to rebel in a Commons vote later, but are now expected to vote with the government.
MPs are debating a Lib Dem motion demanding residency rules are eased.
The home secretary has pledged to carry out a review on restrictions on Gurkhas coming to Britain by the summer recess.
One Labour MP has warned that the government could face an "embarrassing defeat" on the issue.
In a letter Jacqui Smith also stressed that she "cannot foresee any circumstances" under which Gurkha veterans would be deported .
The BBC understands Labour rebel MPs have welcomed the move, making it more likely the government will win Wednesday's vote in a Liberal Democrat-led debate.
Some 36,000 former Gurkhas have been denied residency because they served in the British army before 1997.
Some 36,000 former Gurkhas have been denied residency because they served in the British army before 1997.
'Fantasy'
Opening the Lib Dem-led debate, party home affairs spokesman Chris Huhne said government arguments about too many people coming to the UK if rules are relaxed was "nonsense on stilts. It is based on nothing at all...
"It is fantasy to suppose that more than a fraction will want to settle in the UK."
The Conservatives have confirmed they will support the Lib Dem motion while some Labour MPs who disagree with the government's position may also back it.
These brave men have risked their lives battling for this country, and it is nothing short of a betrayal by Labour ministers to deny them residency Angus Robertson, SNP
The home affairs select committee, whose members come from across the parties, has tabled a separate motion attacking the "unnecessarily restrictive, morally wrong and offensive" restrictions although this is unlikely to be voted on.
At prime minister's questions, Mr Clegg said: "There is a simple moral principle at stake.
"It is this: surely if someone is prepared to die for this country surely they deserve to live in this country."
He also said Mr Brown was "doing a shameful thing, but hasn't got the guts to admit it or change it".
But the prime minister said new rules, introduced last week, would allow 10,000 Gurkhas and their families into the UK.
Mr Brown said he was "determined" to honour the contribution made by the Gurkhas but that progress on allowing more to settle in the UK would have to be done in stages because of financial constraints.
He said he would keep the restrictions on entry under review.
High Court ruling
Immigration regulations introduced in 2004 allowed serving Gurkhas with at least four years' service to move to the UK.
However, they do not apply to those discharged from the Army before 1 July 1997, when their base relocated from Hong Kong to Folkestone, Kent.
The High Court ruled last year that the government policy on older veterans was unlawful and in need of urgent review.
Last week the Home Office responded, saying Gurkhas who left service before 1997 and who wanted to come to the UK should meet criteria involving long service, bravery medals and medical conditions caused by service in the brigade.
During the Lib Dem-led debate on the issue, party home affairs spokesman Chris Huhne claimed the Government had shown a "cavalier attitude" to costs and made a "wild guess" at the number of soldiers wanting to live here.
He said there had been an attempt to take "a narrow number of Gurkha pensioners and gross it up into the largest conceivable number the Home Office can think of.
'Massive pressure'
SNP Westminster leader and defence spokesman Angus Robertson has also confirmed the SNP will back the Lib Dem motion.
He said: "The UK government's treatment of the Gurkhas is simply shameful. These brave men have risked their lives battling for this country, and it is nothing short of a betrayal by Labour ministers to deny them residency."
A Downing Street spokesman said: "We recognise that there is a good deal of interest in these cases. We have already made changes to the guidelines as called for by the court."
The changes would apply to 4,000 Gurkhas and their dependants, he insisted.
Immigration Minister Phil Woolas said last week that letting all 36,000 Gurkhas in to the UK would lead to "massive pressure" on the immigration service.
But campaigners claim fewer than 100 of the Nepalese soldiers will benefit from the Home Office's changes to the rules.
Dozens of protesters have gathered at Westminster, among them actress Joanna Lumley, whose father served in the Gurkha regiment.
