A parliamentary panel this week approved a proposal to limit to just 100 each year the number of new resident permits granted to foreign or stateless people over the period from 2018 to 2020, with just 30 each from China and Russia, legislator Tsend Nyamdorj said.

The measure will now be considered by parliament.

"If the standing committee approves the bill, it makes it very likely the parliament would have no problem passing it," said Mogi Badral Bontoi, chief executive of market intelligence group Cover Mongolia.

Although open to foreign trade, the former communist, one-party state has been careful to prevent an influx of foreign labour.

Mongolians especially mistrust Chinese workers, not only because of long-standing geopolitical tension with their giant neighbour, but also because they can be hired cheaper and work longer hours.

Unemployment in Mongolia stands at 9.1 percent, the National Statistics Office says.

The strain with China can be traced back to centuries of subjugation, with Mongolia only achieving formal independence in 1921. The Soviet satellite state served as a buffer between China and the Soviet Union until 1990, when it peacefully transitioned to democracy.

Rapid economic growth, driven by immense resource wealth, has prompted interest from foreign nationals. Though foreigners now make up less than 0.4 percent of the population, Ulaanbaatar has used high fees and quotas to rein in immigration.

Last year, Mongolia cut its foreign workforce in half, and sent home about 1,200 North Korean workers to comply with the sanctions.

The Oyu Tolgoi copper-gold mine, run by mining conglomerate Rio Tinto, has also been under scrutiny for its use of Chinese labourers.

About 93 percent of the Oyu Tolgoi workforce is Mongolian, exceeding a lower limit of 90 percent set in a 2009 investment pact. During construction, no more than 40 percent of workers could come from overseas.

After an inspection of Oyu Tolgoi last month, immigration officials deported foreign contractors with Australian engineering firm Hofmann Engineering for visa violations.

With just 3.1 million people in an area almost the size of Alaska, Mongolia is the world's least densely populated country.

Many Mongolians are leaving home for work and education elsewhere, including China, and South Korea has eased their pathway to jobs.

"More Mongolians are leaving to work abroad, which means fewer people in the local labour pool," said Bontoi.

"Mongolia capping foreign labour seems very paradoxical."

(Reporting by Terrence EdwardsEditing by David Stanway andClarence Fernandez)