The authority licenses bouncers, bodyguards and shop security guards
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Up to 1,350 illegal workers have slipped through vetting checks for security jobs, it has been revealed.
The Security Industry Authority said three-year licences had been issued to applicants, even though their right to work was due to expire within months.
The error is likely to have misled firms over the status of employees.
Last year, it was revealed that the SIA had cleared more than 6,600 illegal immigrants to work. The Tories accused it of "systematic incompetence".
'Failed to respond'
Despite the tightening of procedures, the loophole was identified by officials last month.
Letters were sent out to 2,000 people who no longer appeared to be allowed to work legally.
An SIA spokeswoman said: "Those who failed to respond with evidence of a continuing right to work (some 1,350) have had their licences revoked and those details appear on the public Register of Licence Holders."
The SIA is an independent organisation which reports to the home secretary
For the Conservatives, shadow home secretary Dominic Grieve said: "Barely a year after they were hauled over the coals for granting 7,000 illegal immigrants security clearance - and trying to cover it up - we now learn that the government has granted over a thousand more licences to individuals whose immigration status is about to expire."
Overhaul
He added: "This episode is yet another illustration of how this government cannot discharge its first duty - to protect the public."
The SIA's systems were meant to have been overhauled last year after it was disclosed that applicants' right to work was not being checked.
Some illegal workers ended up in Whitehall departments and even guarding the prime minister's car.
SIA chief executive Mike Wilson resigned last week after it emerged that some of its own agency staff had not been security cleared.
Liberal Democrat home affairs spokesman Chris Huhne said: "Heads may have rolled but the blunders continue at the Security Industry Authority.
"Jacqui Smith must take immediate steps to get a grip on the culture of carelessness that exists not just at the SIA but across the Home Office."
The SIA spokeswoman said: "We are continually improving our processes to ensure as far as we reasonably can that SIA licence holders are not illegal workers.
"We work closely with security companies to remind them of their legal obligations and best practice when establishing the rights of their potential employees to work but employers should not accept the possession of an SIA licence as proof of this right."
In October, the National Audit Office accused the authority of overspending by £17m.
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