The proposal, which will likely be adopted by parliament, is the latest in a large number of restrictive immigration measures introduced by the government of Prime Minister Anders Fogh Rasmussen since it came to power in November 2001.
Among the measures already adopted are delaying refugees' eligibility for permanent residence permits from three years to seven, and restricting the asylum conditions for conscientious objectors and persecuted homosexuals.
It has also become more difficult for individual refugees and immigrants to be followed by their spouses, and spouses who come from abroad are deported if they divorce within seven years of their marriage.
The Danish prime minister, whose Liberal party governs in a minority coalition with the Conservatives, was elected on promises to curb immigration in order to improve the integration of those refugees and immigrants already in the country.
The minority government relies heavily on the informal support in parliament of the far-right Danish People's Party (DPP) in order to pass legislation.
As a result, the DPP, the third-largest party in the country, has heavily influenced the government's immigration policy - and some would say tarnished the country's longstanding image as a tolerant society and staunch defender of human rights.
Despite international criticism from humanitarian organisations, the European Union and others, Copenhagen has pursued its policies with one goal in mind: drastically reducing the number of immigrants.
The minister in charge of refugees, immigrants and integration, Bertel Haarder, has said the government is on target to meet its goal, "without having infringed upon international conventions."
The number of asylum seekers, which hit a record high of 14,347 in 1993 under the Social Democratic government, dropped to 8385 in 2001, 6660 in 2002 and about 3500 in 2003, according to the ministry's statistics.
"That (a halt to immigration) was the only solution to prevent the country from turning into a ghetto, as is the case in France, Germany or England"
Head, far-right DPP
Despite the dramatic drop - harshly criticised by neighbouring Sweden and Norway who have during the same period seen an increase in the number of asylum seekers - the head of the far-right DPP, Pia Kjaersgaard, called for a complete halt to immigration in a New Year's address.
She said that was "the only solution to prevent the country from turning into a ghetto, as is the case in France, Germany or England."
Kjaersgaard said her party would "spare no effort" to make sure Denmark did not experience the same "frightening developments" as in those countries.
The DPP is behind the new bill proposed on Wednesday, under which Danish-born foreigners will have to present a fully-fledged naturalisation application, like any other immigrant, to be examined on a case-by-case basis.
Currently all foreigners born on Danish soil receive citizenship automatically if they request it between the ages of 18 and 23, so long as they do not have a criminal record.
"Danish nationality is not a right. And to award it automatically is unconstitutional," DPP spokesman Jesper Langballe told AFP.
The draft law also allows for the possibility of stripping naturalised immigrants of Danish citizenship if they commit serious crimes "against society" or acts that "threaten the independence or security of the state".