Over 160,000 asylum seekers have been given leave to remain in the UK at "considerable cost" to the public purse, MPs have said.
The home affairs committee condemns the UK Border Agency (UKBA) as "still not fit for purpose" in its latest report, which notes that just nine per cent of asylum seekers have had their claims rejected and then removed.
A backlog of around 450,000 cases, some of which date back nearly 20 years, has not yet been addressed and it is now feared it could be increasing further.
Forty per cent were granted asylum, while 51% were not yet resolved.
The MPs' report stated: "We understand that ministers would have been unwilling to announce an amnesty for the applicants caught up in this backlog, not least because this might be interpreted as meaning that the UK was prepared more generally to relax its approach towards migration; but we consider that in practice an amnesty has taken place, at considerable cost to the taxpayer."
In nearly 75,000 cases, the applicants cannot be found and it is not known whether they they are in the UK, have left the country voluntarily or are dead.
"While there is no doubt that individual caseworkers are dedicated and hard-working, there are serious concerns over the agency's ability to deal with cases and respond to intelligence swiftly and thoroughly," committee chair Keith Vaz said.
"The government is set on reducing immigration to the tens of thousands and effectively controlling immigration.
"It will have to ensure that the UKBA begins to focus on the outcome rather than the processes of their work."
The report also noted that UKBA's e-Borders scheme remains significantly behind its timetable and that checks were still not being carried out checks on employers registered as being sponsors of skilled migrants.
As a result a "very large number of people" remain in the UK who do not have a right to be in the country, MPs concluded.
"This government is overhauling the uncontrolled immigration system it inherited," a Home Office spokesperson said.
"We are already radically reforming the points-based system and other routes of entry that have been subject to widespread abuse and will re-introduce exit checks by 2015.
"We are making greater use of intelligence to remove people with no right to be here and are concluding individual cases faster."
Shadow Home Office minister Gerry Sutcliffe said the committee's report showed the difference between the Tory government's promises and what it is delivering.
"This is woeful mismanagement from the Home Office, adding to the confusion surrounding their policy," he commented.
"We still do not know whether their promise of cutting net migration to the tens of thousands by 2015 is Government policy or not, while enforcement of the UK's borders is being undermined by cuts.
"The Conservatives made big promises on immigration, but they are failing to deliver."