Mississippi’s Republican governor campaigned last year on minimizing government regulation of business, but he signed bill Monday that he said will require employers to use an unproven federal system to check immigrants’ status.

Haley Barbour said he has “serious concerns about specific provisions of the bill that could have unintended negative consequences.”

The bill becomes law Jan. 1. It will require employers to use the U.S. Homeland Security electronic verification system to check whether new hires are legal residents. Employers who hire illegal immigrants could lose their business license for a year and any state contract work for up to three years.

Any illegal immigrant found working in the state could face a one-year prison sentence and a fine of up to $10,000.

“I am concerned about mandating the E-Verify system as the sole source from which an employer in Mississippi can verify a potential employee’s eligibility, especially since the federal government itself has said E-Verify is not a reliable system,” Barbour said in a news release.

The governor said he is asking legislators to make technical changes so the new law will have the intended effect of preventing employers from hiring people who are in the U.S. illegally. To make any changes, legislators would have to file a new bill, and that is unlikely to happen because the deadline for filing bills has passed.

Barbour said smaller businesses are not required to use the federal program until July 1, 2011. He said the new Mississippi law establishes employers’ use of E-Verify as “an absolute defense against suits brought by a former employee.”

“But the bill does not make plain that the smaller employers are immune from these private suits until the mandate to use E-Verify goes into effect for employers in their size category,” Barbour said. “It should be made plain that small employers are exempt from and will be held harmless from the private litigation … until such time as they are required to use the E-Verify system under the statue’s timetable.”

Immigrants’ advocates had called on Barbour to veto the bill, which they said targets Latinos. Bill Chandler, executive director of the Mississippi Immigrants Rights Alliance, said he is appalled that Barbour signed the legislation.

“This is the grossest form of discrimination and it’s the most racist legislation that’s been passed since the Sovereignty Commission and the Jim Crow laws,” Chandler said Monday.

The Sovereignty Commission was Mississippi’s state-sponsored agency that spied on civil rights activists. It existed from 1956 to 1973.

Immigration has become a hot topic in political campaigns and on conservative talk radio. Lt. Gov. Phil Bryant, a Republican, was elected in November on promises to crack down on illegal workers.

Barbour, who won a second term in 2007, said early in the campaign that immigration is a federal issue. He also said Mississippi’s Hurricane Katrina recovery had gotten a boost from immigrant workers. But in the final weeks of the campaign, Barbour ran ads saying he would enforce immigration laws in the state.

Barbour said Monday: “Employers are understandably concerned when government applies new regulations to their businesses, especially when these new regulations provide for powerful penalties, even including loss of current contracts or of a license to do business in our state. Employers, therefore, can be expected to be very cautious in hiring with the sword of these penalties hanging over their heads.”

The bill is Senate Bill 2988.