Liberal MPs have expressed concern over Angus Taylor’s immigration policy, with one claiming the party’s soul is being “corroded by hate”.

Several Liberal MPs have said they now believe Pauline Hanson’s party was in control of the Liberal agenda.

During his Thursday night budget reply speech, Taylor confirmed the Coalition would directly link Australia’s temporary immigration intake to the number of new homes built around the country, using housing completion figures as a hard ceiling for overseas arrivals.

It comes after an escalation in Taylor’s rhetoric on immigration, recently labelling certain countries as “bad”, as the party tries to stem the flow of votes to One Nation.

One Liberal MP, who spoke to Guardian Australia under the condition of anonymity, said some in the party were concerned the language on migration was “dog whistling” and being fuelled by the threat of Hanson’s minor rightwing party.

“One Nation now controls the Liberal agenda. To have as your signature policy response to the budget attacking migrants should be seen as the white flag of surrender to One Nation onslaught,” the MP said.

“The soul of the Liberal party is now corroded by hate. Hate encouraged and fuelled by the panicked One Nation wannabes in the National party.”

The senior Liberal said that if the Liberal party fell into oblivion, “the only joy is that the National party would die before us”.

Another Liberal MP welcomed the economic announcements made on Thursday, including indexing income tax brackets, but said the party needed to shift its focus away from immigration.

“We’re never going to out One Nation on migration,” the Liberal said.

Former Liberal MP, Jenny Ware, who lost her seat in the 2022 election, said she supported discussing curbing immigration and welcomed tying migration levels to infrastructure and housing construction.

But she also warned Taylor against chasing Hanson.

“The danger is in their rush to beat One Nation and to defeat One Nation that they are going to fall into the trap of the One Nation rhetoric and of thinking down to one nation’s level,” she said.

“We need to have this conversation about immigrants and infrastructure and housing. The danger in a lot of the rhetoric that I’ve heard, both implied and direct, is that we then start targeting certain groups.”

Ware said migration was a “two-way street” between immigrants adopting Australian values and the government providing adequate infrastructure and services. She warned that the threat of One Nation was not just coming for the Liberal party, but would bite Labor too.

Hanson has taken credit for the Liberals copying her policies, and told Nine news on Thursday, “Everyone knows that I set the agenda with politics in Australia because I’m listening to the Australian people, and if they want to pick up my policies, good luck to you, mate.”

Last month, Taylor announced he would block permanent residents of Australia being able to access a popular program for first home buyers, a policy Hanson also said was one of hers.

Another Liberal MP said that they backed the economic and immigration policies and were not concerned about appearing to copy One Nation, but acknowledged that there was a risk the public could “misinterpret the policy and see it as dog-whistling”.

The budget reply was quickly slammed by immigrant advocacy groups, while Labor labelled the policies as “dog-whistling”. On Friday, the home affairs minister Tony Burke, said: “ … the one permanent resident that Angus Taylor seems happy with is Pauline Hanson, who’s a permanent resident in his head.”

Taylor denied on Thursday night that the announcements were aimed at stemming the flow of voters to One Nation, and dismissed accusations that the party was at risk of angering key multicultural demographics, telling the ABC’s 730 program, “citizenship is a privilege”.