Businesses paying illegal workers less than the minimum wage are blamed for rising tensions between an immigrant community and local residents.
Tensions are rising in Kettering over work payments
Other employment laws are also being flouted by employers in Kettering, Northamptonshire, the local MP claims.
Philip Hollobone has raised the matter in Parliament.
He said legitimate employees are seeing pay and conditions being undermined and he wants the government to act because the problem is widespread.
Recruitment agency manager Gez Donnelly said many of the illegal immigrants being put to work are registered in bedsits, being paid less than the minimum wage and have unlawful deductions taken from their earnings.
Mr Hollobone said he was alerted to the problem by several of his constituents who told him legal immigrants were now being forced to work under these reduced conditions.
"Kettering has a well established Sikh population and its residents are concerned that the town now has an immigration problem which never existed before," he said.