"In the coming 12 months, workers from EU states will have only restricted access to the Swiss labour market," the Swiss Federal Council said in a statement.
The decision is in response to calls by right-wing political parties, and comes despite the opposition of the left and the country's powerful financial sector.
Immigration is a hot-button issue in Switzerland with the far right Swiss People's Party making huge inroads in recent years claiming that foreigners are taking away Swiss jobs.
And according to Swiss statistics, there has been a recent surge in the number of southern Europeans, especially from Portugal and Spain, settling in the country as the eurozone debt crisis bites in their home countries.
The clause is part of a bilateral agreement on migration with the European Union and allows temporary quotas on residency permits for EU residents wishing to work in Switzerland.
In its decision, Switzerland is applying to the EU as a whole limits already in effect to newer EU entrants Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia, Slovenia and the Czech Republic.
Despite the move, "the EU is and will remain our most important partner," said Justice Minister Simonetta Sommaruga at a news conference announcing the decision.
In May 2012, Switzerland said 2,180 workers from the new entrant EU nations could work in the country until the end of April 2013.
The limit had raised strong opposition from Brussels, even though the ability to limit EU workers for a temporary period of time was included in a agreement signed between the EU and Swizterland in 2002.
The clause, however, expires in 2014 according to the deal.
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