Young people leaving education with no job to go to will be made to do three months' full-time unpaid work experience with charities and social enterprises or have their benefits cut, the Government has announced.
Under new plans, 18 to 24 year-olds who have spent less than six months in employment since leaving school or college will have to work at least 30 hours a week to get their £56-a-week jobseeker's allowance.
They will also get a guaranteed 10 hours a week help preparing their CVs and searching for a job.
Some 968,000 aged 16 to 24 are now Neets – not in employment, education or training – up from 949,000 in the first quarter of the year. However, 16- and 17-year-olds will not be covered by the scheme as they are ineligible for jobseeker's allowance.
Ministers denied the plan amounted to "slave labour" and claimed it was designed to ensure young people leaving education got into the routine of work immediately and didn't become used to a "benefits lifestyle".
"We don't want them waking up at lunchtime and playing computer games all day," said a Department of Work and Pensions source.
However, the move has been criticised by Labour and the unions who said more effort should be put into organising paid training for young people which is relevant to future employment.
The scheme will initially be launched in London but is expected to be rolled out across the country.
Announcing the scheme, alongside the Mayor of London, Boris Johnson, the Employment Minister Chris Grayling said it would help young Londoners improve their prospects.
"It's time to look at a different way in Britain," he said. "A something-for-nothing culture does no one any favours.
"It makes those who are doing the right thing cynical. And for those who head straight into the welfare state, it sets them out in life on precisely the wrong footing."
Mr Grayling added: "The usual suspects will cry 'slave labour'. They always do. (But) if you haven't yet had the chance to make a financial contribution, then it's not at all unreasonable to ask you to give something to the community before it gives something to you."
The scheme will be tested in 16 London boroughs, including areas affected by last years riots. Mr Johnson said: "I would much rather people had the fun and the experience of work placements and the confidence that comes with it than being on benefits and seeing their self-esteem fall away."
Labour's Shadow Employment Minister Stephen Timms said: "Work experience can be invaluable in helping young people find out about life in the work place. But what long-term unemployed young people really need is a job. Ministers should bring in Labour's Real Jobs Guarantee and get over 100,000 young people into real paying work."
TUC general secretary Brendan Barber said the scheme was not the right approach. "If we're to avoid the creation of a lost generation in the capital, a more sensible approach would be to guarantee decent training or a work trial to all young people from the first day of their claim."
The Government faced controversy over some work-for-benefits programmes earlier this year, with companies dropping out after bad publicity over seemingly unfair terms.