As many as 11,000 illegal immigrants may have been cleared for UK security jobs, the home secretary has told MPs.
Ms Smith said licences were now being revoked
Jacqui Smith said that after checks, it appeared 6,653 people were not allowed to work in the UK, and 4,447 others had not yet proved their right to do so.
Last month it was thought only 5,000 people had been wrongly cleared.
Shadow home secretary David Davis said something had gone "badly wrong", while Lib Dem Nick Clegg accused ministers of "spectacular mismanagement".
In a Commons statement, Ms Smith said the Border and Immigration Agency believed 6,653 people with Security Industry Authority (SIA) licences did not have the right to work in the UK.
There was a question mark over the others, but Ms Smith said a "significant proportion" of these may yet prove they were legally able to seek work.
She said licences given to many employers were now being revoked.
Ms Smith said: "Visits to specific individuals and employers have already begun and swift action has been taken in those cases which merit it.
"A series of targeted enforcement operations will take place in the coming months with a view to prosecuting employers and removing or prosecuting individuals in the worst cases."
The SIA was set up to vet applicants for security jobs, and allows those who are successful to work on pub and club doors as well as in sensitive security posts.
Ms Smith said the SIA licence showed a successful applicant had undergone training as well as identity and criminal record checks.
It did not prove someone was entitled to work in the UK. That responsibility rested with employers, she said.
But since 2 July new immigration status checks had been introduced by the SIA which, along with the employers' checks, would provide a "double lock on illegal working".
Hundreds of licences have since been refused.
Last month, Ms Smith announced that about 5,000 illegal immigrants had been working as security guards - but the figure has been revised upwards after checks on the 39,885 non-European Economic Area nationals licensed by the SIA before July 2 this year.
The SIA licences security staff for venues and sensitive posts
For the Conservatives, shadow home secretary David Davis said: "Last month we were told that there were 5,000 illegal foreign workers in the security industry. Then it was 10,000. Now it's up to 11,000."
He demanded to know how the system had "gone so badly wrong" and said there had been a "huge policy failure" in the Home Office.
Mr Davis said the SIA's website would lead the security industry to believe that it had been checking immigration status.
He questioned Ms Smith about her account of when she had informed the prime minister of the "brewing scandal" - Ms Smith has been criticised for failing to disclose details of the problem when she learned about it in July.
Ms Smith said 409 licences had been revoked of those checked from before 2 July and more than 10,000 letters "instituting revocation" had been sent - but there is a minimum 42-day period for revocation.
Liberal Democrat home affairs spokesman Nick Clegg said that up to one in four of the 40,000 people licensed by the SIA were illegal.
He said: "As someone who has been following quite closely, for some time now, the series of scandals which have disfigured this government's spectacular mismanagement of the immigration system, I thought we'd seen it all.
"But this latest belated revelation of 'Keystone Cops' incompetence truly takes the breath away."
The problem emerged after an enforcement operation in April discovered 44 people working at a security company who did not have the right to work in the UK - 12 had been subcontracted to a company that provided staff to guard locations under Metropolitan Police contracts.
Others were employed at ports and airports. One man had been guarding government cars, including that of the prime minister.