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Glasgow Council has announced a change of policy in its dispersal of asylum seekers following the murder of a young asylum seeker and mass demonstrations in the city's streets this week.

The change of policy would see asylum seekers being moved away from Sighthill estate, where more than half of the city's 8,500 refugees are housed, to other areas of Glasgow and other local authorities.

Its plans are supported by the Scottish executive and Robina Qureshi, director of positive action on housing at the Commission for Racial Equality, who criticised the council for concentrating solely on housing and failing to invest in social services and police support for asylum seekers. "The council are to receive £100 million over five years, yet no resources have been invested in protecting asylum seekers or community development," she said.

Scottish Refugee Council manager Julia Allan added: "Successful integration and settlement of asylum seekers will not take place until the government and local authorities review the asylum system and properly finance dispersal."

Police have launched an inquiry into the fatal stabbing of 22-year-old Firsat Yildiz, a Turkish Kurd.

Home Office minister Lord Rooker said the government's asylum dispersal system would not be stopped and was very successful. He insisted that, although National Asylum Support Service (NASS) "would not deliberately aggravate any local situations", it would not pull out of areas "simply because people say it is an area where there could be racists".

A Home Office spokesperson confirmed that the NASS was in negotiations with other areas in Scotland.