The BBC's Kim Catcheside: "In income support, more than 9% of claims could be fraudulent"

The estimated cost of fraudulent or highly suspicious claims for benefits including income support, jobseeker's allowance and child benefit was more than £2bn - about the same as in 1996-97.

In its annual audit of the benefits system the National Audit Office (NAO) says false claims for income support and the jobseekers' allowance accounted for an estimated £1.53bn of the loss.

The NAO comptroller and auditor general, Sir John Bourn, said: "Whilst there are some uncertainties surrounding the interim results of the area benefit reviews, the results do indicate that there continues to be a significant level of fraud in income support."

Iain Duncan Smith: "Labour's promises look shallow now"

The Conservatives said the report proved that the government was guilty of breaking its promise to cut benefit fraud.

"Labour pledged to save money from social security spending, and the cornerstone of this pledge was that they would save money by cutting more fraud than the Conservatives did," said shadow social security spokesman Iain Duncan Smith.

"Their promises look pretty shallow now."

The Benefits Agency (BA), which is responsible for administering the benefits, insisted it is working hard to bring down the cost of fraud.

BA Chief Executive Peter Mathison said: "We realise that there is still much to be done as we face up to the challenge of delivering a modern welfare service. That is our priority for this year and beyond."

And the NAO said that recently introduced measures to combat fraud, including random checks and more home visits to claimants, should mean an improvement in the accounts for the current financial year.

Tax credit 'will make things worse'

The results also show that child benefit fraud cost the state £184m in the last financial year.

People lying about their children being still in full-time education when in fact they were out at work, or wrongly claiming a single parent premium when they were living with a partner, are believed to be the most common types of fraud.

The Benefits Agency insists it is working hard to cut the cost of fraud

Mr Duncan Smith said government plans to introduce the new Working Families Tax Credit and more means-testing for benefits would lead to increased fraud, making the situation "even worse".

The NAO report says total spending on an array of benefits undershot the government's allocation of £38bn by £1.846bn, helped by falls in unemployment.

But it adds that the BA failed to hit its savings target by more than £200m. Savings totalled £1.213bn, compared with a target of £1.427bn.

The savings target for the current financial year has been set at £2.3bn. The government has said it wants to save £6bn in the five years from 1996-97.

Sir John said that for the 10th year running he had to qualify - in other words, refuse to approve - the accounts because of the problems of fraud and accuracy.