The Government has been accused of presiding over a chaotic immigration system and implementing what amounted to an "amnesty" for asylum seekers.
The Home Affairs Select Committee of MPs said it was clear the UK Border Agency was "still not fit for purpose", a criticism first made by the former Labour Home Secretary, now Lord Reid, back in 2006.
Since then, the UKBA has been battling to clear an historic backlog of 450,000 asylum cases.
Although that target has largely been achieved, it has come at a cost, according to the Home Affairs Select Committee Chairman Keith Vaz MP .
He said the reduction in such cases "seems to have been achieved largely through increasing resort to grants of permission to stay".
The Committee found that 4 out of 10 of the cases that have been concluded led to the asylum seeker being allowed to stay in the UK.
To clear the backlog, guidance was revised to allow officials to consider granting leave to remain to applicants who had been in the UK for between six and eight years, as opposed to the 10-12 years that applied at the start of the backlog-clearing process, the MPs said.
Some 403,500 cases were concluded, with just 38,000 (9%) having their claims rejected and being removed from the UK.
But 161,000 (40%) were granted leave to remain, "such a large proportion that it amounts in effect to an amnesty", the committee said.
Some 74,500 other cases have been sent to the controlled archive "signifying that the applicant cannot be found and the agency has no idea whether or not the applicant remains in the UK, legally or otherwise".
Mr Vaz said: "We consider this indefensible. Moreover, public confidence in immigration controls is severely undermined by such situations.
"A robust immigration system requires those administering it to have an appropriate system in place that will mean applicants are not lost or untraceable."
Mr Vaz added: "Though progress has been made, it is clear that the UK Border Agency is still not fit for purpose.
"While there is no doubt that individual caseworkers are dedicated and hard-working, there are serious concerns over the agency's ability to deal with cases and respond to intelligence swiftly and thoroughly."
Joseph Givans arrived from Jamaica 11 years ago. Now living in the West Midlands, he says he is still waiting for permission to stay in the UK permanently.
Mr Givans said: "I can't get any money for the kids because I haven't got my stay. I cannot sign on because I haven't got my stay.
"I can't get a home for my kids because I haven't got a stay. I haven't yet got the legal right to stay permanently in the country but I've been here all this time."
But Immigration Minister Damian Green denied there was any amnesty for asylum seekers. "There's absolutely no amnesty," he said.
"What we've done is get through to the bottom of that huge problem we inherited.
"The main thing is we've now eliminated this backlog from the system so we can now get on with the everyday job that the previous government couldn't because they had that backlog."
He added that exit checks would be brought back by 2015.