The number of homeless families in England has topped 100,000 for the first time.
A homeless woman in bed and breakfast accommodation
But more than three quarters of the families are living in good quality, self contained temporary homes, not on the streets, ministers say.
An extra £150m is being released to help the 500,000 homeless people.
Adam Sampson, of the charity, Shelter, said the figures were a "damning indictment" of the fourth-richest country in the world.
Temporary accommodation could damage health, education and prospects, especially for children, he said.
Mr Sampson said there were not enough affordable social houses available to rent, adding: "It's a half a billion pound problem the government is going to have to dig very deep to resolve."
The new figures show the number of households in accommodation arranged by local councils under homelessness laws was 100,810 at the end of September.
The figure was up 6,680 on the previous year, with 82% of the families in self-contained accommodation and 18% using shared facilities.
The number of families in bed and breakfasts was down 28% from last year, although slightly up from June.
Crisis, the national charity for single homeless people, said the figures were just the "tip of the iceberg".
"When you add in the 380,000 'hidden homeless' - those living in hostels, squats and other places - there are nearly half a million homeless people in the UK today," said chief executive Shaks Ghosh.
But Deputy Prime Minister John Prescott insisted the government was tackling the problem.
The situation was not good enough but it was very different from the problem left by the last Conservative government, he said.
He told BBC News: "Now the homelessness is not about people living on the streets, it's living in proper accommodation, some of it private, some of it council housing.
"Basically, what it means is they don't have a settled arrangement."
Since 2002 councils had a duty to find people settled housing, said Mr Prescott. The numbers staying in bed and breakfast were down 94% since 1997, with rough sleeping down 70%,
He also hailed a doubling of investment in housing and pledged £90m to improve hostels.
But Liberal Democrat local government spokesman Ed Davey said figures showing homelessness would not improve until 2007 were buried in a note to the official report.
This was an "admission of total failure", he said.
"Even if the government does reverse the trend, it will take 22 years just to get homelessness back to the level it was in 1997.
"Every family should have a home - but under Labour that simple aspiration won't be possible until 2037."
Conservative Shadow Minister for Housing and Planning John Hayes said: "Tony Blair came into power pledging to tackle the scandal of homelessness in Britain. But he has cheated tens of thousands of homeless families.
"The government's only sorry success has been the funding of temporary accommodation and Mr Prescott has no coherent plan which offers hope to the homeless."