People working for the benefits agencies have cheated the system out of more than £500,000 since Labour came to power, prompting calls for tighter security checks.
Government employees used elaborate scams, including creating false identities, to claim thousands of pounds of bogus benefits, a Liberal Democrat MP has discovered.
Swindling by employees of benefits agencies or the Jobcentre Plus shops has more than doubled in the past year to £199,000, and in many cases the culprits have not been discovered or charged.
Steve Webb, the Liberal Democrat work and pensions spokesman, found fraud worth more than £516,000 had been committed by staff paid by the taxpayer since 1997. He is concerned that the value of individual scams shows signs of increasing and that many staff who swindle the system have not been detected.
In the financial year 2001-02, one fraud worth £180,000 was found. The Department of Work and Pensions said frauds ranged from claiming benefits in the name of genuine claimants to filling out forms falsely and diverting cash to bogus identities.
Whitehall sources said the number of people caught was the "tip of the iceberg" and thousands of pounds worth of swindles by government and local authority staff remained undiscovered because of insufficient security checks.
"The Government makes great play of its battle on benefit fraud," Mr Webb said last night. "It talks tough, but these figures reveal a shocking level of fraud committed by government employees. In every year since Labour came to power, they have swindled taxpayers out of tens of thousands pounds. The cases still pending from 1998 send out the wrong message. It is time for the tough talking to stop and the action to start."