Birmingham City Council said it would not be extending its five-year contract with the UK Border Agency next June.
The council currently provides up to 190 homes for asylum seekers. It said it needed to free up housing for homeless people living in the city.
Councillor John Lines, in charge of housing at the local authority, said: “Over the last year, we have seen a sharp increase in the number of homeless people in Birmingham and we must help the citizens of this city first and foremost.
“With a long waiting list for homes, we really need all our properties for our people in these difficult economic times.
“Birmingham will continue to meet our obligation to help the Government and we will work with the UKBA to help them find alternative services, possibly in the private sector, so that they can meet their objectives following the end of our contract with them.”
Other councils in the West Midlands, including Dudley, Wolverhampton and Coventry, also provide accommodation for asylum seekers in the region.
The local authority will continue to provide housing advice and assistance to asylum seekers.