Failed asylum seekers will have to do community work to qualify for food and homes under Home Office plans.
Ministers want refugees to remain where they are sent
David Blunkett warned of "problems" on the streets with groups of destitute people unless such action is taken.
The home secretary also plans to restrict access to council housing to stop people returning to London from the "dispersal" areas they are sent to.
The Tories branded the plans "panic measures" rushed out by a government "with one eye on the local elections".
The proposals are in ministers' changes to the Asylum and Immigration Bill to be published on Wednesday.
Mr Blunkett said something had to be done about failed asylum seekers "with no visible means of support," who were congregating on the streets of some UK towns.
He said it "made perfect sense" to give them an opportunity to work for "basic subsistence".
"That is something for something, in the same way we are doing with our welfare to work programme," Mr Blunkett told the BBC.
The measures would apply to people who have been turned down for political asylum but who cannot immediately return to their country because it is deemed too dangerous.
But Liberal Democrat home affairs spokesman Mark Oaten accused Mr Blunkett of treating innocent people like criminals.
"Community service is for people who have committed crimes, not for people who have failed in their asylum claim.
"If individuals cannot be deported through no fault of their own they should be allowed to do paid work.
"If the government really wants to reduce the benefits bill they should allow all asylum seekers to work for a decent wage while their applications are pending," said Mr Oaten.
Mr Blunkett is also expected to unveil a clampdown on bogus marriages, with non-EU nationals having to prove they are in the UK lawfully before getting wed.
Back payments of income support will also be scrapped and replaced by a "refugee integration loan" based on need, in the amendments, to be tabled on Wednesday.
Currently those who are granted asylum get refugee status and can then claim back-payments of income support.
One proposal likely to prove controversial is efforts to restrict asylum seekers to specific areas of the country by controlling access to council housing.
Refugees will only be allowed to settle in dispersal areas - in other words where they are sent.
Currently, many asylum seekers are placed in towns and cities across the UK but gravitate back to London and South East of England.
Under this measure, they will lose their rights to housing if they move out of an allocated area.
Defending the proposals, Mr Blunkett said: "People who have been granted refugee status, citizenship or are being supported by the taxpayer must recognise that with these rights come responsibilities and support to those unable to return must be dependent on them giving something back to the community."
Conservative shadow home secretary David Davis said the measures were a response to Labour's incompetent management of the asylum system.
"We welcome the fact they at last seem to be taking the problem seriously, and some of these measures may make sense," said Mr Davis.
"However, announcing hastily drawn up measures at the last minute hardly inspires confidence.
"This is entirely characteristic of Labour's incompetent and shambolic approach to asylum and immigration issues."
On Monday, peers rejected government plans to limit to five days the time failed applicants have to appeal to the new asylum and immigration tribunal.
The House of Lords voted by 143 to 94 to back a Lib Dem amendment which doubled the appeal period to 10 days.
The government is now considering whether to try to overturn the changes.