More than one in five of the foreigners cleared to work in security jobs could be illegal immigrants, the Home Secretary admitted amid accusations of "blunder, panic and cover-up" in the Home Office.
In stormy Commons scenes, Jacqui Smith defended her handling of the issue, blamed employers for failing to carry out proper checks on staff and promised "robust action" to tackle the problem.
She was forced to make an emergency statement to MPs after it emerged this week that thousands of illegal immigrants could be working as security guards in sensitive sites.
Among them were 12 working for a company hired by the Metropolitan Police, including one who was guarding a repair yard where the Prime Minister's car was taken.
An inquiry was launched in April. Leaked memos disclosed that Ms Smith was alerted to the situation in July, two weeks after she became Home Secretary, but accepted the advice of civil servants to keep it secret.
Ms Smith told MPs she wanted to establish the full scale of the problem and to ensure it was being corrected before she went public.
She said that the background of 6,000 of the 40,000 non-European security sector workers had been checked so far by the Security Industry Authority, which licenses the sector, and by the Borders and Immigration Agency.
It had provisionally established that only 77 per cent of the workers had the right to work, 10.5 per cent did not and more checks needed to be carried out on 12.5 per cent.
Her figures suggest that as many as 8,000 foreign security workers could turn out to be in Britain illegally once checks are completed in December.
She insisted she took urgent action over the summer by ordering the checks on security staff to be accelerated and by writing to 2,000 private security companies to remind them of their "legal duty" to check employees' immigration status. Ms Smith said that she did not want to put "incomplete and potentially misleading information" into the public domain. She added: "My approach was that the responsible thing to do was to establish the full nature and scale of the problem and to take appropriate action."
The Home Secretary said she did not tell the Prime Minister about the problem when it emerged as it was being handled. "There was action being taken to strengthen the system and there was investigation [taking place] in order to provide the evidence to be able to explain that to the public. There was no fiasco, no blunder. There was strengthened and improved action."
Earlier, Downing Street said that Gordon Brown had full confidence in Ms Smith. His official spokesman said: "The Prime Minister has spoken to the Home Secretary and he is satisfied with the explanation he has been given."
But David Davis, the shadow Home Secretary, accused the Home Office of "blunder, panic and cover up" in its response to the crisis. He said: "The Home Secretary no doubt regrets not making this statement some time ago."
Mr Davis said Mr Brown had spoken of leading a frank and candid government. He added: "Yet in one of her first actions as Home Secretary, she put avoiding political embarrassment ahead of solving the problem and informing the public. That is neither frank nor candid."
Ms Smith responded: "I don't make any apologies for being the sort of minister whose first reaction to an issue is not, 'What should I say about it?' but 'What should I do about it?' That's what I have done."
Jeremy Browne, a Liberal Democrat home affairs spokesman, asked: "After 10 years in power and with a slimmed-down Home Office, how can you explain the continued incompetence of your department?
"The Government talks tough on crime and immigration when the reality is weakness and failure."
He challenged Ms Smith to tackle what he called her department's "culture of spin and obfuscation".
Home Office memos that sparked the row
* [From Mark Williams, Private Secretary] 9 August: "[The Home Secretary] agrees with you that this is not ready for public announcement yet. She did not think the lines were good enough for press office or ministers to use to explain the situation."
* [From Peter Edmundson, Policing Policy Directorate] 20 August: "Any announcement about illegal migrant workers and SIA [Security Industry Authority] licences would not be presented by the media as a positive story."
* [From Peter Edmundson, PPD, to Ms Smith]
30 August: "Controversy and handling: Potentially high . . . [the media] are likely to refer back to other Home Office so-called 'blunders' which adversely affected coverage of the department."
A ministry of trouble
* April 2006: Charles Clarke admits over 1,000 foreign criminals were released from jail without deportation hearings. He resigns as Home Secretary three weeks later.
* May: Five Nigerian illegal immigrants are found working as cleaners in immigration office.
* June: New Home Sec John Reid says his department is not "fit for purpose".
* July: Plans ditched to merge police forces.
* October: Two terrorist suspects on control orders go missing; more follow in later months.
* November: Prison population passes 80,000. Offenders have to be held in police cells.
* January 2007: Home Office admits it failed to pass on details of 27,500 offences, including five murders committed by Britons in other countries.
* March: Internal inquiry concludes the department suffered a "collective failure" to tackle the foreign offences problem.
* March: Plans to strip Home Office of responsibility for prisons and probation announced.
* October: Home Office on defensive after Department for Work and Pensions twice revises UK's foreign-workers statistics.