Prime Minister Boris Johnson said the change would see students "unlock their potential" and begin careers in the UK.
But campaign group Migration Watch called it a "retrograde" step.
*'I almost regret coming to the UK to study'
*Overseas student visa service 'needs fixing'
*Australia beats UK for overseas students
The change will apply to international students in the UK - there were around 450,000 last year - who start courses at undergraduate level or above from next year onwards.
They must be studying at an institution with a track record in upholding immigration checks.
Under the proposals, there is no restriction on the kinds of jobs students would have to seek and no cap on numbers.
"If one needed evidence of a new approach to immigration within government, today's announcement allowing all foreign students to stay for two years after graduation is just that," the BBC's home editor Mark Easton said."Where Theresa May introduced what she called a hostile environment around migration rules, with an ambition to reduce net migration to the tens of thousands, Boris Johnson has promised to scrap that target and encourage the brightest and best to come and live and work in global Britain."