In a speech to the Universities Australia Solutions Summit, UK High Commissioner Vicki Treadell said the issue of foreign students should be depoliticised.
While major parties have debated over international student numbers, Ms Treadell said people immigrating to study should not be included in those figures.
"There is a genuine debate to be had that whilst immigration is always a political issue at the time of an election, we should, perhaps, and this is a personal view, depoliticise it," she told the summit.
"Perhaps students should no longer be part of an immigration cap because they are vital to our colleagues, they're vital to our people in the future."
At a time of rising geopolitcal tensions, Ms Treadell said education systems in Australia and the UK were a crucial form of soft power that could be used as part of diplomatic efforts.
"If we give them the best education we have, if they have the greatest experience of their time in our countries, they are friends and allies and partners in the future," she said.
"As far as foreign students are concerned, they are essential to that business of our two countries, of how we grow education."
Earlier, University of Technology Sydney chancellor Catherine Livingstone said universities had displayed a "tin ear" for concerns in the community related to the sector.
Ms Livingstone said universities had often inflated their claims of importance to the community, while ignoring issues such as the impact of immigration and housing affordability.
"We've been focused in optimising our own economics with ever increasing numbers of international students, with an apparent tin ear to community concerns on the perceived impact of immigration on housing availability," she said.
"Continuing to assert our value in generic terms around student and research outcomes, coupled with entitled demands for more money, is not serving the engage the trust of our key stakeholders."
Ms Livingston said many universities had been in "denial" about the role they played in several issues to the extent they were perceived as being out of step.
"Inevitably, this has led to concerns being raised about the governance at universities," she said.
"For a sector that's funded with significant public money, there is more reference to global aspirations and rankings than there is to the contribution to Australia's prosperity and wellbeing."
The university chancellor said more needed to be done for students at their institutions to ensure they were getting educational value.
"For students, we're selling a product with an embedded promise of a graduate premium which, arguably, is itself diminishing. And we're selling it on deferred interest-bearing payment terms," she said.
"In other sectors, we would be required to have a formal product disclosure statement on policy engagement."
While the tertiary sector and the federal government had worked together on reforms, known as the Universities Accord, Ms Livingstone said it represented a "missed opportunity".
"It's essential now that the sector itself engages and really drives the process of understanding and demonstrating its role," she told the summit.
"We all need to stop admiring this problem as we have been doing for more than two decades, and find a way forward.
"We owe it to the country, but more importantly, to the wellbeing of the generation about to enter the system."
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