Fraudsters stole the identities of thousands of civil servants and used their personal information to divert several million pounds in tax credit payments into false bank accounts, the Government has admitted.

Details of precisely how the fraud was carried out are being kept confidential as part of an ongoing criminal inquiry, but it is believed that fraudsters gained access to the internal payroll information of up to 13,000 employees of the Department of Work and Pensions.

They logged into the tax credits internet portal using the stolen names, National Insurance numbers and dates of birth, and redirected payments of up to £1,000-a-year into shadow bank accounts. The apparent absence of any independent checks which might have picked up the fraud is the focus of an internal investigation.

The unsophisticated "skimming" hijack, carried out under the nose of the department, is the latest embarrassment to afflict Gordon Brown’s flagship tax credit system, which was criticised for clawing back accidental overpayments to low income families. It adds to the government's already unenviable record with technology.

Around 1,500 staff who work in Job Centre Plus offices in London, Glasgow, Pembroke Down in Wales and Makerfield in Lancashire are known to have been affected. Checks are being carried out on the department's wider workforce.

The e-portal for tax credit claims, used by around 500,000 people a year, was shut down two weeks ago, on December 1, some time after HM Revenue and Customs identified the loophole.

The potential scale of the fraud was only revealed today following the intervention of David Laws, the Liberal Democrat work and pensions spokesman. He has accused ministers of seeking to hush up the extent of the problem.

Mr Laws said that he had been informed the tax credits phone helpline had also been subverted by fraudsters, who call in first to register a change in address, and then to alter their bank account details. That suggestion was however today dismissed as "ridiculous".

Mr Laws believes that HMRC has known about the problem for up to two years. He alleges that basic checks - such as demanding a birth certificate to be sent in as proof of identity - were not put in place to prevent it. He wrote to Auditor General Sir John Bourn today to demand an investigation by the National Audit Office.

Mr Laws said: "Now millions of pounds may have been lost, and thousands of genuine claimants have had their tax credit claims abused and their money stolen. Hoping the problem will go away and hushing it up is a betrayal of taxpayers and all the honest, genuine claimants that are falling victim to this scam.

"The extent of this fraud could be immense, and people need to be warned."

The Conservatives used the breach as an opportunity to knock the government's record of computer systems. Mark Francois MP, the Shadow Economic Secretary to the Treasury, said: "This is yet another problem with this complicated and much troubled system, which the Government has still failed to reform."

Unions have blamed successive rounds of job cuts for crippling the department’s ability to carry out adequate checks.

Alex Flynn, a spokesman for the Public and Commercial Services Union, said: "What we are asking is that nobody is left out of pocket, especially as we are in the festive season."

A job centre employee, who wished to remain anonymous, told the BBC that 90 per cent of the staff in his office had been affected. "I went to work on Tuesday. I called the helpline. I was on the phone for 15 minutes and eventually was told that a claim had been made in my name," he said.

"My greatest worry is that if these people have got our identity details they can apply for loans, open up bank accounts and two or three years down the line that's your credit rating destroyed."

The DWP insisted today that it was confident the problem was limited to a specific group of staff, and that it was taking measures to support them during the investigation. It is not known when or if the web portal will be revived.

A spokesman for HM Revenue & Customs said: "We take any suggestion of fraud against our systems extremely seriously and are conducting a criminal investigation into this case with DWP. Whilst the investigation is ongoing, we can’t comment in detail.

"When fraud happens, we move quickly to stop any further payments being made to the fraudster, prosecute those responsible and get the legitimate claim back on track. We always investigate allegations of fraud and we can and do prosecute fraudsters."

The spokesman added that the wider public was not affected. He said: "The fraud relates to internal information held about staff, and not the external records DWP holds.

"DWP and HMRC are carrying out an in-depth investigation into how this happened. They are also working quickly to identify the records concerned and to ensure they are corrected. They will ensure that no staff are disadvantaged as a result of it."

A spokeswoman for the DWP said: "Our staff are understandably concerned but we are confident from the information we have that the issue is limited to a specific group. We have kept staff up to date by issuing bulletins and ensuring line managers in the regions affected have been briefed.

"Alongside the tax credit helpline, we have set up a telephone service for line managers to call if they need further information. We are also liaising with our unions so they understand the position."

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