The home ministry last week said it would comply with a 2015 Supreme Court order to grant citizenship to some 54,000 Chakma and Hajong, who are Buddhists and Hindus, respectively.
But following protests from the northeastern states where most of them had settled, a senior official said the government would appeal the order so that the rights of indigenous people in these states are protected.
"We are trying to tell the Supreme Court that giving Chakmas and Hajongs the same rights is not acceptable to us," junior home minister Kiren Rijiju told reporters on Monday.
The chief minister of Arunachal Pradesh, where most of the refugees live, has said such a move would change the demographics of the state which has a predominantly tribal population with special rights including over land.
India is not a signatory to the 1951 Refugee Convention, which spells out refugee rights and state responsibilities to protect them.
Nor does it have a domestic law to protect the more than 2,00,000 refugees it hosts, including Tibetans, Sri Lankans, Afghans, Bangladeshis and Rohingyas from Myanmar.
They are all considered foreigners by law, with limits on their movement within and outside the country, and barred from government schools and jobs, as well as welfare benefits.
Balance Of Power
The Chittagong Hill Tracts region in the southeast of Bangladesh has been the site of violent ethnic conflict for decades, displacing tens of thousands of indigenous people from what was then East Pakistan.
The Chakma and Hajong settled in Arunachal Pradesh, Tripura, Assam, Mizoram, Meghalaya and West Bengal.
"But giving tens of thousands rights in the small northeastern states can be a problem. Jobs are not plentiful, land is scarce, and it can shift the balance of power in small constituencies," he said.
The decision to grant citizenship to the Chakma and Hajong comes at a time when the government is planning to deport some 40,000 Rohingya Muslims who face persecution in Myanmar.
On Monday, the home ministry told the Supreme Court its hardline stance was justified by the security threat posed by the immigrants, hundreds of thousands of whom have fled to Bangladesh, from where many have crossed into the country.
The government's Citizenship (Amendment) Bill, 2016 proposed to make illegal migrants who are Hindus, Sikhs, Buddhists and Christians eligible for citizenship.
Earlier this year, the government began issuing Tibetan refugees Indian passports. They can get limited citizenship rights, and cannot own land.
The Chakma and Hajong refugees - who are half as numerous as Tibetan refugees in India - want full rights, a representative said.
"Citizenship is our legal right, and we must get all the rights that an Indian citizen has, including over land," said Paritosh Chakma, secretary general of the All India Chakma Social Forum lobby group.
"We are also a tribal people, we have lived here a long time, and our traditions and customs are the same. The concerns about stealing jobs and land are not valid."