The level of benefit overpayments caused by fraud or errors has risen by £400m to £3.1bn in the last year, according to official estimates.
The National Audit Office (NAO) said the Department for Work and Pensions faced "significant challenges" in correcting the situation.
Some £1bn of the total figure for 2009-10 was caused by fraud.
Spending watchdog the NAO has qualified the department's accounts, meaning there are doubts about them.
Amyas Morse, head of the NAO, said: "Over the last year the department has been under increased pressure, caused by the increase in benefits claimants because of the economic downturn, and this has led to a slight increase in the error rate.
"Although the processing of benefits will always be subject to some degree of fraud and error, the department should continue to find ways of driving down the level of funds that are erroneously overpaid to benefits claimants."
However, the NAO said the payment of state pensions had a "low level of error", meaning this area of the department's accounts did not have to be qualified.
The total benefits overpayment for the last accounting year, 2008-9, was £2.7bn.
The department's accounts have been qualified by the NAO every year since 1988/9.