Immigration and visa policies are damaging Britain's standing on the world stage and must be urgently overhauled, peers have warned.
British diplomacy is stuck in the last century and risks leaving the UK "outwitted, out-competed, and increasingly insecure", according to a House of Lords committee.
It calls for an increase in the use of soft power - described in its report as "getting what one wants by influencing other countries to want the same thing through the forces of attraction, persuasion and co-option" - to bolster Britain's global influence and meet foreign policy objectives.
But peers warn that domestic policies can damage attempts to forge relationships and highlight how almost every expert that appeared before them warned that the Coalition's visa reforms were "harming the assets that build the UK's soft power".
They call for students to be removed from net migration targets and a change in tone from the government in the way it speaks about immigration.
The committee also recommends the creation of a new strategic unit at the heart of Government to deal with swiftly potentially damaging policies or messages coming out of departments, peers said.
Its report on Soft Power and the UK's Influence said: " Accepting that while managing immigration represents a highly complex challenge for any government, they must make every effort to ensure that legitimate visitors can access UK visas quickly, easily and cheaply; they should remove students from net migration targets.
"The Government must present and communicate their visa and immigration policies with a level of balance and in a tone that do not discourage those who would add to the UK's prosperity from coming to the UK and supporting its businesses; we do not believe that this is always the case at present."
The committee highlights a raft of assets in the UK's soft power artillery, including the dominance of the English language in business, the reputation of British institutions such as the monarchy and legal system, and the commitment to international development.
More resources must be ploughed into British embassies, not less, and the Government must deal with shifting international power bases, the committee said.
The report states: " A new approach to international power becomes more urgent by the day. The UK must remain a top-rank performer in the global network and it finds itself in the fortunate position of having every opportunity to do so.
"However, while celebrating the UK's situation, we also warn that if the Government do not face the facts of the transformed international order, the UK will risk finding itself outwitted, out-competed, and increasingly insecure."
Committee chairman Lord Howell of Guildford said: " The UK depends now for its security and its prosperity not just on our superb Armed Forces, but on the imaginative use of soft power on many fronts to back them up and achieve the results we want and need.
"Our diplomacy and indeed the conduct of all our international relations now have to adjust to entirely new world conditions. Power has shifted away from the 20th-century pattern of Western dominance, and away - to some degree - from government and central authorities altogether, as the internet and digital connectivity have built up new networks, alliances, lobbies and relationships around the planet.
"Achieving influence through soft power is often a long-term investment and won't always deliver quick returns. But in an increasingly competitive and interconnected world it is an essential component in the successful fulfilment of the UK's international role.
"We have a good story to tell about Britain's role, its purposes, its strengths and its successes, but we must tell it very much better."