Doctors who examine people claiming sickness and disability benefits are accused today of "institutional racism" by an inquiry into working practices.

A group of MPs called for doctors who show "cultural insensitivity" to be sacked, and asked the Commission for Racial Equality to mount an investigation into Medical Services, which examines claimants for the Government's Benefits Agency.

The criticism will fuel the debate about Labour's record on stamping out discrimination. Ministers are already under fire because of an admission by Mike O'Brien, a Home Office minister, that his department was "institutionally racist."

The all-party Social Security Select Committee found evidence that people from ethnic minorities suffered discrimination during their medical examinations.

Some were denied access to an interpreter, and an eight-year-old boy in London was asked to interpret for his mother, who did not want him to know about her incontinence problems.

One doctor reported that a claimant had no problems with bending or kneeling because he went to a mosque to pray. In fact, the man sat in a chair at the mosque and only gently lowered his head.

The MPs also listed examples where doctors were accused of "crude stereotyping". One doctor's report referred to "a pleasant negro lady", while others accused Irish claimants of alcoholism even where there was no evidence.

The committee said: "It is unfortunate that doctors have made inappropriate references to claimants' ethnic origins in reports, and it is clear why this has given offence." More worrying was that no effective guidelines and training had been given despite promises that this would happen, it said.

"We believe Medical Services could be laying itself open to the charge of institutional racism in two ways: in failing to train adequately doctors in issues of cultural awareness and in failing to make claimants aware that they may request the service of an interpreter. We expect it to address both issues as a matter of priority," the committee said.

The MPs' report said insensitive doctors should receive immediate remedial training and have their performance monitored. Those failing to improve should be dismissed.

It said all women claimants should have the right to be examined by a female doctor and should be told this when they receive initial letters about their examination.

The MPs also described the general treatment of all claimants for sickness and disability benefits by Medical Services as "not acceptable" and demanded urgent steps to ensure better standards.

Today's report was published as the Government unveiled its Disability Rights Commission, which will champion the civil rights of disabled people and fight prejudice.

Margaret Hodge, a minister for Education and Employment, admitted disabled people faced "enormous" discrimination in their day-to-day lives. She said there were "endless" examples of prejudice such as the blind being refused service in restaurants, a woman being told she could not join a dating agency because she was in a wheelchair, and someone being dismissed simply because they had cancer.