Kicking off the party's campaign in the Hampshire seat vacated by Chris Huhne's resignation for pleading guilty to perverting the course of justice, Mr Farage said: "Our number one issue is that this country faces a second massive migratory wave "We have nothing against people from Bulgaria and Romania, we wish then well, but we cannot think it's right this country has a total open door policy."
He said the pressure on housing, education and services from immigration "poses a major problem" for the country, especially if people from other countries claim benefits.
Citizens from Romania and Bulgaria will have full movement rights across Europe from 2014.
He also said that the other parties were ignoring the issue of immigration.
"I'm always confident when UKIP is on the ballot paper," Mr Farage said.
"If we can rally our support like we have in the last three by-elections in Rotherham, in Middlesbrough and in Corby then this seat could become a four-way marginal."
Mr Farage also called the EU budget reduction negotiated by Prime Minister David Cameron as "a rotten deal for Britain".
"If you go and knock on 100 doors here in Eastleigh and tell them that they will Pay £50 million a day to Europe for the next seven years they will think that's not a good deal."
He also said that "the years of mockery and derision" for the party were over since he had been UKIP's first ever candidate in another Eastleigh by-election in 1994 - coming second to last and just in front of the Monster Raving Loony Party.
"The whole tenor of the debate in this country has changed since then, it's now an in/out debate on Europe," he said He explained that in Eastleigh the party would also be campaigning on how a EU subsidy that Britain had put money into had allowed Ford to close its Transit van factory nearby.
But Mr Farage added he would not be standing in the by-election and denied it was because of Mr Cameron's EU referendum promise.
"Good God no," the MEP said. "I do not think a vague promise of a referendum five years from now is a reason for not standing.
"The reason is simple: I am leading this party into the local elections in England and then the European elections and thirdly, it's quite busy in Brussels and I need to be there.
Mr Farage said that the party now had good candidates and denied it was just a one-man party and that he was that man.
"If we went into Eastleigh and asked people to name four front bench Labour politicians they couldn't," he claimed.
He said the party now had a shortlist of five candidates that the local branch would choose tomorrow with the candidate unveiled in Eastleigh on Tuesday morning.
The Liberal Democrats, who held the seat in the 2010 General Election with a majority of 3,684, will announce their candidate for the February 28 poll tonight.