MPs have warned that attempts by the UK border agency to close a backlog of cases "the population of Iceland" could lead to a significant number of immigrants being granted amnesty.
The Commons Home Affairs Select Committee said the number of outstanding immigration and asylum cases rose by 25,000 in three months and is "spiralling out of control".
Keith Vaz, the committee's chairman, said: "There are now about the same number of cases awaiting resolution by UKBA as there are people living in Iceland."
The MPs added: "We are concerned that the closure of the controlled archives may result in a significant number of people being granted effective amnesty in the United Kingdom, irrespective of the merits of their case".
More than 300,000 cases needed to be dealt with at the end of June, up 9% over the previous three months, the Commons Home Affairs Select Committee said.
But clearing the backlog should not be a rushed job done without the proper checks, the committee's report on the UK Border Agency (UKBA) warned.
The troubled agency had 302,064 cases to investigate, trace or conclude by the end of June - more than 25,000 compared with the end of March, figures showed.
Most of the increase came from a rise of more than 24,000 missing migrants who have been refused permission to stay in the UK but whose whereabouts are unknown, referred to as the migration refusal pool.
The outstanding cases also included the 95,000 in the so-called controlled archives, effectively the backlog of immigration and asylum cases, which the UKBA has pledged to close by the end of the year.
But to do this it will have to assess all these cases in three months when only 29,000 were removed from the archive in a year, the report said.
"We are concerned that the closure of the controlled archives may result in a significant number of people being granted effective amnesty in the United Kingdom, irrespective of the merits of their case," the MPs said.
While many of the people in the backlog of cases will have already left the country, "we are not convinced that the agency's limited checking regime will have picked up all of the applicants who remain in the country", the MPs went on.
"For this reason we are concerned that the final checks made on these cases should be thorough and that they should not be rushed to meet an artificial deadline."
The report also questioned the consequences for both the individual and the taxpayer if applicants whose cases are closed are then found in the UK.
"We are particularly interested to find out whether any such individuals would be offered an amnesty or if they would have to start their asylum or immigration application again," the MPs said.
Mr Vaz went on: "Senior management promised to clear the 'controlled archive' by December 31 and that will mean writing off 81,000 files, some of which have been shown to contain real people.
"They need to get a grip.
"Entering the world of the UKBA is like falling through the looking glass.
"The closer we look the more backlogs we find, their existence obscured by opaque names such as the 'migration refusal pool' and the 'controlled archive'."
"UKBA must adopt a transparent and robust approach to tackling this problem instead of creating new ways of camouflaging backlogs."
Immigration Minister Mark Harper said: "This report raises some legitimate concerns but we are taking robust action and it is working.
"Every day it gets harder to live illegally in the UK - we are tracking people down and taking action against them.
"We are restricting access to benefits, free healthcare and financial products, and businesses can be fined up to £10,000 for every illegal worker they employ.
"We are winning more deportation cases in the courts, exceeding visa processing targets and have introduced interviews to test whether foreign students are genuine - all of which are praised in this report."
A UK Border Agency spokeswoman added that there was "absolutely no question of an amnesty".
"If any of these individuals come to light in the future, we will take action."
Of those who remain, "thousands of checks on government and private sector databases have shown no trace of them being in the UK", she added.
"We have to conclude the vast majority are no longer here - endlessly repeating these checks would not be a sensible use of taxpayers' money."