Guy Verhofstadt signed the letter published in Britain's Guardian daily and other European newspapers, along with the leaders of the main centre-right and centre-left groupings in the European Parliament.
"The European Parliament will reserve its right to reject any agreement that treats EU citizens less favourably than they are at present," the letter said.
It said Britain's plan "would cast a dark cloud of vagueness and uncertainty over millions of Europeans" by giving EU citizens living in Britain fewer rights than those of British citizens in the EU.
"It was a damp squib," the letter said, adding that the risk was of "creating second-class citizenship".
Under the proposals, European Union nationals who have been resident in Britain for five years would earn permanent residency rights as is currently the case.
But, like non-EU immigrants now, they would lose the right to vote in local elections in Britain and would be subject to minimum salary requirements to be able to bring family members into the country.
The MEPs said the proposals also left it "unclear what the status of post-Brexit babies would be".
Children born to EU nationals who do not have permanent leave to remain will have to apply for it.
There are estimated to be around 3.2 million European Union nationals living in Britain and around one million British nationals in other parts of the EU.
British Prime Minister Theresa May outlined the proposals last month, calling them a "fair and serious offer".
The EU's chief Brexit negotiator Michel Barnier at the time dismissed the plan in a tweet saying: "EU goal on citizens' rights: same level of protection as in EU law. More ambition, clarity and guarantees needed than in today's UK position".
Britain voted to leave the European Union in a referendum last year and May formally notified the EU earlier this year of the country's intention to leave, starting a two-year countdown to Brexit.
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