Millions of pounds in housing benefits and job seekers allowance may have been lost to fraudulent claims by fake passport holders.

Around 100 people in Islington, many of North African descent, are thought to have been using dodgy European identification to set up false addresses and scam huge amounts of cash.

Those in Islington are claimed to be part of a wider network of around 300 people across London who between them have cost around �3million in false claims.

Islington Council have been aware of the situation for more than a year and staff have been issued with instructions on how to spot the forgeries, already saving a “substantial sum of money”.

Officers are working in tandem with the Department of Work and Pensions (DWP) and the police to crack down on the problem and a series of raids have led to arrests and the recovery of forged passports.

A spokesmen for the council said: “The use of fake ID documents in support of claims for housing benefits has been on the increase recently and Islington has introduced stringent checks to identify fake claims. This includes trailing the use of a scanning device capable of detecting false passports, EU Identity Cards, driving licences, etc.

“The council’s benefit investigation staff are liaising closely with the National Fraud Authority, the Serious Organised Crime Agency (SOCA), the police and the UK Border Agency and the DWP in order to circulate details of known fake IDs to other organisations and, where possible, to apprehend individuals who are using fake ID’s to make benefit claims.”

Last month, the DWP launched a mobile regional task force to tackle areas that are at high risk of benefit fraud.

Lord Freud, minister for welfare reform, said: “The new task force is our latest weapon in tackling welfare fraud on the front line. We are sending a clear warning that if you are fiddling the system, you will be caught. Welfare fraud is a crime and takes money away from the most vulnerable.

“People who are receiving the correct benefits and Tax Credits have absolutely nothing to fear. But if people have deliberately not told us of a change in circumstances, they should do so now, before the team comes knocking at their door.”