The Home Office has admitted illegal immigrants have been mistakenly cleared for jobs as security staff.
Ministers ordered fresh checks on all new security staff
Ministers have ordered new checks on 40,000 people vetted by the Security Industry Authority since 2004.
The Home Office says the SIA did not check applicants were entitled to work in the UK before granting licences.
Some are understood to have been working as contract staff for the Metropolitan Police. The Tories said the system was "not fit for purpose".
According to the Sunday Mirror, illegal immigrants were also working at airports and ports.
The newspaper claimed 5,000 illegal immigrants were estimated to have been employed in posts such as security guards and bouncers.
Removal from UK
The Home Office said the SIA, which it set up to regulate the security industry, took immediate action as soon as they became aware some licence-holders had been employed illegally.
"From July this year, all new applicants have been granted a licence only if they are entitled to seek work in the UK," a department spokesman said.
He added that checks on all existing licence-holders will be completed shortly and anyone found to be working illegally would have their licence taken away and would face removal from the UK.
The spokesman stressed employers were legally responsible for ensuring their staff were entitled to work in Britain.
He added that ID cards were being introduced for foreign nationals in 2008 which would "strengthen the fight" against illegal immigration.
A spokeswoman for the Metropolitan Police said after the force was informed in April that a number of people from a contract company might be working illegally they were removed from police work.
The contract company also suspended them until investigations were completed, she said.
The Met refused to say what jobs they had been undertaking, or how sensitive the positions were.
Shadow immigration minister Damian Green said: "What is extraordinary about this latest Home Office fiasco is that we have been through this before.
"Last year the Home office discovered it was employing illegal immigrants as cleaners in the immigration department itself.
"From these new revelations it looks like no effective action was taken to check who has access to some of the most sensitive buildings in this country.
"It looks like the Home Office is still not fit for purpose."
Liberal Democrat home affairs spokesman Nick Clegg said: "Public confidence in the government's handling of immigration will take yet another hammering with this revelation.
"It is impossible to promote the merits of a fair and effective immigration system as long as the government mixes headline-grabbing populism with serial administrative incompetence."
The SIA has cleared 250,000 applicants since it first started issuing licences in 2004.