Benefit chiefs have launched an urgent investigation into how discs containing the unencrypted details of thousands of claimants were missing for a year.
Two discs were found at the home of a former contractor to the Department for Work and Pensions who had forgotten to return them, the News of the World reported.
They contain data on what kind of benefits the individuals receive which could be accessed by any standard computer and is not protected by a password.
The blunder follows the Government's recent revelation that it had lost the personal details of more than 25 million people in the post.
A junior official at HM Revenue & Customs official in Tyne and Wear sent two unencrypted CDs containing details of child benefit claimants by courier to the National Audit office in London. The discs were not recorded or registered.
Shadow work and pensions secretary Chris Grayling said the latest case suggested a "cavalier attitude towards data protection in Government departments".
"Ministers need to explain urgently how they are going to put things right," he said.
And Liberal Democrat spokesman Danny Alexander warned security breaches could put people off claiming much-needed state help.
"There is a real concern that if some of the most vulnerable people lose confidence in the Government's ability to look after their personal data, they will not claim money to which they are entitled.
"It is very surprising that Peter Hain has not spoken publicly about his department data practices since the HMRC scandal broke. He needs to speak up now or risk further undermining public confidence in the benefits system."
A DWP spokesman said: "We take the security of customers' data extremely seriously.
"Although there is no indication that any customers' data was compromised by this incident we are investigating and will ensure safe return of the information.
"As good practice and in light of the Chancellor's announcement the Permanent Secretary instigated a review of our data transfer procedures."
Prime Minister Gordon Brown has demanded that root-and-branch checks on the Government's data security are completed by December 10.
It emerged yesterday that confidential information on millions of investors is regularly being sent through the post to HM Revenue and Customs without proper security.
Investment managers in the City are required to mail personal data on their clients to HMRC on unencrypted computer discs despite the recent outcry.
HMRC said encrypting the data would be a "recipe for chaos", as it would not be practical to decrypt information from thousands of different financial institutions using different coding programmes.Reuse content