Attorney General Baroness Scotland has been fined £5,000 after being found to have employed a housekeeper who was not legally allowed to work in the UK.
The UK Border Agency said she took steps to check Tongan Loloahi Tapui's right to work but had not kept a copy of documents, as required by law.
Opposition parties say her position is "untenable" but No 10 said it was an "inadvertent" mistake.
She apologised for the "technical breach" and said she accepted the fine.
Baroness Scotland, the government's chief legal adviser who oversees criminal prosecutions in England and Wales, helped take the legislation on employing illegal workers through Parliament when she was a Home Office minister.
In a statement she said she fully accepted that she had made a "technical breach of the rules" and apologised for "this inadvertent error".
She told BBC News: "I have been given an administrative penalty. This is not a case of a criminal act, this is the case of failing to photocopy a document which I absolutely accept was wrong and I have apologised for that wholeheartedly.
I did believe the woman that I employed was honest, and honourable and entitled to be here
"This was a woman who was working locally, she was married to a solicitor. I believed the documents that I saw on their face value.
She added: "I did believe the woman that I employed was honest, and honourable and entitled to be here. That was a flaw and I have therefore absolutely accepted that for this technical breach, administrative breach I should be penalised."
It is understood that she had seen the woman's passport, a letter from the Home Office on her right to work, her P45, her National Insurance details, references and a marriage certificate.
'No further action'
In a statement, Downing Street said: "The UK Border Agency is satisfied she did not knowingly employ an illegal worker. She examined documents of her status. She paid tax and National Insurance on her earnings. She employed her new cleaner in good faith.
"But regrettably she did not retain copies of the documents proving the right to work she was given. As a result she is paying an administrative penalty."
It added that breaches of the law were taken "seriously" and the PM had consulted the cabinet secretary about whether the ministerial code had been breached.
Daniel Sandford, home affairs correspondent, BBC News
Between February 2008 - when the illegal workers penalty scheme started - and June 2009, the total number of fines paid was 1,156.
All of those were paid by businesses like restaurants, shops and petrol stations.
Baroness Scotland appears to be the only individual to have paid a fine for employing an illegal migrant worker. Quite probably she is the only individual to have been issued one too, although we can't be sure of that at this stage.
The UK Border Agency knows that many people employ illegal migrant workers for housework and childcare, but these are not pursued as a priority.
However, it looks as if Baroness Scotland has been pursued because of the publicity surrounding her case and her position.
But because she had not knowingly employed an illegal worker and had checked documents Mr Brown believed " no further action" was necessary.
However shadow home secretary Chris Grayling told the BBC the law was very clear - that employers could not be "inadvertently innocent". "I think her position is pretty untenable to be frank," he told the BBC.
He said because she was a senior minister who had stood up to argue for the law when taking it through the House of Lords, "you have to ask, can she possibly stay in that position?"
"I think it's a sign, frankly, of Downing Street not showing leadership over this issue," he added.
For the Liberal Democrats Chris Huhne said the attorney general should be expected to know the law and her position "now looks untenable... I think it's very very difficult for her to stay to be honest. I don't know the full story yet."
He said the fact she was the government's chief law officer and had helped draft the legislation "put her position in extreme peril".
However immigration minister Phil Woolas told the BBC: "I don't think you can seriously say that everybody in public life who committed a mistake under civil law should resign, I think there would be very few people left in public life."
The UK Border Agency began an investigation after the story was published in the Daily Mail newspaper.
Chris Grayling: "She is the person who stood up and argued these laws were necessary"
The agency's chief executive Lin Homer said the agency was satisfied Baroness Scotland "did not knowingly employ an illegal worker" and had taken steps to check documents "provided to her as proof of right to work in the UK".
But she added: "The law requires that employers must keep copies of documents proving the right to work in the UK and in this instance the employer failed to meet this requirement."
She said Baroness Scotland would pay a "civil penalty of £5,000" - the maximum £10,000 fine was not usually imposed in cases where employers co-operated and had no history of employing illegal workers.
BBC Home affairs correspondent Daniel Sandford said he had been through the list of all those fined under the new laws and he believed Baroness Scotland was the only individual - rather than business - among the 1,156 to have paid fines.
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