Only 1.5% of reports alleging illegal immigration result in a person being removed from the UK, MPs have said.
The Home Affairs Committee also said the now-defunct UK Border Agency had a backlog of 432,029 immigration and asylum cases when it was scrapped at the end of March.
Its chairman, Labour MP Keith Vaz, urged the coalition to take "effective action" to amend a "poor record".
The government responded that it was "getting tough" on illegal immigration.
The committee looked at the allegations database set up by the UKBA to follow up tip-offs by the public. It replaced a system where allegations and removals were held separately.
It revealed that about 6% of claims had led to an investigation and 1.5% had resulted in removals.
'Incomprehensible'The committee said it was "extremely concerned about the number of allegations that are made to the Allegations Management System that are not investigated.
"We recommend that all allegations are actioned and checked against national databases. It is incomprehensible that only 1.5 in 100 reports of illegal immigration result in someone being removed from the country."
Mr Vaz said there was a "very poor record" on removals, which did "not give confidence to those who go out of their way to help the Home Office".
The committee's report revealed that between its introduction on 30 September last year and 30 June this year, the database had received 48,660 allegations - about 178 a day.
It said the rates of investigation and removal risked undermining confidence in the system and "could lead to reluctance to report such allegations if the public perceive that no action is being taken".
The MPs recommended that those who made allegations of illegal immigration be told the outcome of investigations, in an effort to improve public confidence.
After a series of damning reports, Home Secretary Theresa May abolished the UKBA and replaced it with UK Visas and Immigration and an Immigration Enforcement command, which were brought back under the control of ministers.
'Confidence'"There are still over 430,000 cases languishing in the backlogs, enough to fill Wembley Stadium almost five times over," Mr Vaz went on.
"As we have said on numerous occasions, the backlogs must be cleared as a matter of priority. Only then will the Home Office be able to tackle the deeper problems in the immigration system."
Immigration minister Mark Harper said: "The UK Border Agency was a troubled organisation since its formation in 2008 and its performance was not good enough. That is why we split the agency and brought its work into the Home Office under two distinct directorates."
He added: "Our newly created UK Visa and Immigration directorate is focused on delivering a high-volume, high-quality visa service, while Immigration Enforcement is getting tough on those who break our immigration laws."
Mr Harper also said: "We are building an immigration system that the public can have confidence in. We have already reformed the immigration rules and net migration is down by a third since its peak in 2010."
Under plans announced by the Home office last month, landlords would be asked to check the immigration status of their tenants.
There would also be new powers to check driving licence applicants' immigration status and a reduction in the number of grounds for appeal against deportation decisions from 17 to four.
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