Every single one of the 1,500 passports which has gone missing since 2004 is a cause for concern, John Reid has said.
Mr Hosie has called for urgent action by the home secretary
But the home secretary stressed that 3,500 had been going missing every year before a more secure mailing system was introduced in February 2004.
The 1,500 figure had emerged in a written answer to Scottish National Party MP Stewart Hosie, who branded the situation "very worrying".
The Home Office says it is still working to reduce losses further.
New system 'failing'
More than 300 passports were stolen or lost in delivery and others simply went missing and were never recovered.
Mr Hosie said: "They introduced a secure delivery mechanism and even that is failing.
"It may be small beer in comparison to the 400,000 or so immigrants who are here illegally but it is potentially very serious if one of these stolen passports can prove an identity for someone who ought not to have it."
Mr Hosie, the SNP's home affairs spokesman, has urged Mr Reid, who took over from Charles Clarke in the Cabinet reshuffle, to tackle the problem urgently.
The Home Office said it was trying to reduce losses and new passports would contain security features aimed at preventing forgery.
Mr Reid meanwhile said: "We have reduced the number of missing passports from 3,500, as it used to be, to 1,500. It's still too many but a big reduction.
"We are now making sure that when anything does go missing, that it is shared with our intelligence agencies.
"So there has been big progress because we take it seriously but obviously every single one which goes missing is a concern."