International lawyers said Britain's immigration process was "worse than a Third World country", with businessmen and asylum-seekers facing months of delays for visas or residency applications.
The chaotic situation is embarrassing the Government, which has pledged in a White Paper to encourage foreign investment by lowering immigration barriers to entrepreneurs. It has also undermined plans to cut the backlog of asylum-seekers, which has grown to 65,000, as the number of applications being processed has fallen from 3,000 to 800 a month.
The Immigration minister, Mike O'Brien, has ordered an overhaul of the system in an effort to end years of inefficiency. He accepted there would be "considerable upheaval" between December and February as computers were upgraded and the directorate moved from Lunar House in Croydon, south London, to new offices nearby.
The move has been beset by unforeseen problems, which have hit international business people and asylum-seekers alike.
Immigration sources said that in one building alone the staff were struggling to cope with 10,000 unsorted documents and two weeks of unopened post .
Julia Onslow-Cole, a partner with the London lawyers Cameron McKenna, and chairman of the International Bar Association's immigration committee, said the system had become "totally chaotic".
She said: "It's really absurd to have a situation which is paralysing business applications whilst issuing this rhetoric about trying to get entrepreneurs into the country."
She said clients from America, South Africa and the Middle East had been affected by the delays.
Foreign business people who are based in Britain are effectively being marooned here for months while extensions to their residence permits are being reconsidered.
In the meantime they are prevented from travelling abroad to important business meetings, she said.
The overhaul of the immigration system ran into problems last July, when computer sub-contractors pulled out of the project. Home Office officials decided to press ahead with the move to new offices, although the new computer system has not yet been established.
John Tincey, of the Immigration Service Union, said the situation was "pretty dire".
New working practices were designed to allow officials in different buildings to view the same files at the same time but depended on computers that had not been installed.
Mr Tincey said the time for an asylum application to be processed had grown from eight months to a year. "Things have slowed down to a crawl if not to an actual stop."
One refugee organisation said: "It is an astonishing way for an organisation to operate when they are juggling life and death decisions about who has the right to remain in this country."
The Home Office said the move was causing a "temporary drop in service" but that urgent cases were still being dealt with.Reuse content