The government's work programme, intended to help jobseekers back to work, is failing people with disabilities as well as not tackling problems faced by homeless people and those recovering from substance abuse.
MPs found that although the Work Programme got off to a "poor" start there had since been improvements in support for the "mainstream" unemployed.
However the Work and Pensions Committee said there is "growing evidence" that disadvantaged jobseekers are being "parked."
The welfare-to work scheme is failing, say MPs
It criticised the techniques of providers, who are paid according to their success in securing long-term work for clients, claiming they are playing an "ineffective numbers game" that involves deluging employers with poorly matched CVs and under-prepared candidates.
MPs also said they were "dismayed" to learn that Work Programme advisers had to deal with up to 180 jobseekers, arguing that the caseload was too heavy to allow an effective service.
Richard Hawkes, chief executive of the disability charity Scope, said: "The Work and Pensions Select Committee is right, the Work Programme is currently not working for disabled people.
"It is absurd that disabled people who face the biggest barriers to employment are receiving the least amount of support. No wonder so few disabled people are actually finding jobs through the Work Programme.
"Disabled people want to work but they face multiple barriers such as a lack of skills and experience, confidence and even negative attitudes from some employers.
"If the Government is serious about disabled people moving off benefits and into work it needs to ensure disabled people get the specialist, tailored and flexible support they need.
Last year the Government faced calls to scrap the scheme after revealing that only 3.5% of those taking part had found sustainable jobs.
MPs said that none of the 18 major providers met their targets in the first year of the programme. As they are paid on a payment-by-results system, the government has spent about £248 million less on the Work Programme than anticipated in 2012/13, according to the report.
Dame Anne Begg, who chairs the Work and Pensions Committee, said: "The performance of the Work Programme in its first 14 months was poor. There are signs that it is now improving significantly for mainstream jobseekers.
"We hope the next job outcome statistics to be published in June will bear this out - we will be very concerned if they don't.
However, the Work Programme has proved much less successful to date in addressing the problems faced by jobseekers who face more serious obstacles to finding a job - people with disabilities, homeless people, and those with a history of drug or alcohol abuse.
"It is clear that the differential pricing structure is not a panacea for tackling creaming and parking. The Government must do more to ensure that the Work Programme provides effective support for all jobseekers, not just the ones who are easiest to help."
She added: "Too often, the reality seems to be Work Programme advisers swamped by caseloads of 120-180 jobseekers and employers deluged with poorly matched CVs and under-prepared candidates.
"Work Programme providers need to focus on preparing jobseekers for real vacancies and offering an effective recruitment solution to employers."
The committee found the welfare-to-work sector lacks effective regulation. The MPs said there was a "suspicion" that larger organisations used smaller, specialist groups with experience of supporting jobseekers with the severest barriers as "bid candy" to make their applications more appealing, then failed to use them.
TUC general secretary Frances O'Grady said: "Instead of continuing to fund failing programmes, the Government should introduce a job guarantee for all those facing long-term unemployment."
Shadow work and pensions secretary Liam Byrne said: "This report is fresh evidence that Iain Duncan Smith and David Cameron are failing the test they set themselves in opposition.
"Unemployment is rising in three-quarters of Britain's poorest estates and now we know why - the Work Programme is simply not working for them.
"It is surely time for this Government to listen to Labour's call for a new approach to getting Britain back to work, drawing together the best of Britain's councils, government, voluntary sector and private sector, as they do in other parts of the world.
"And we need a compulsory jobs guarantee to get anyone out of work for more than two years back into a job; a job people must take or risk losing their benefits."
A DWP spokesman said: "It is still early days but according to industry figures already more than 207,000 people have been helped into a job through the Work Programme by the end of September 2012 and performance is clearly improving.
"The payment-by-results model goes further than any previous scheme to encourage providers to help all claimants, including the hardest to help. The key point is they earn the majority of their payment for helping someone into work and keeping them there.
"Almost half the providers are voluntary or community sector organisations and a third from the private sector. What they all have in common is that they are experts in helping long-term unemployed people back to work."