Parliament's spending watchdog has attacked the government's failure to tackle fraud within the benefits system.

The National Audit Office has warned that welfare ministers have failed to secure a reduction in the £3 billion lost through fraud and error.

The watchdog last year told the Department of Work and Pensions that it must reduce fraud levels.

But it has found no change in the 2.7 per cent of the £112 billion welfare budget which is wrongly spent.

The worst offending areas were Income Support and Jobseeker's Allowance - which lose £860 million and £290 million in mispayments.

Fraud and mispayments in the housing benefit system also remains a concern, the NAO said.

As a result of the failure to reduce fraud levels, the watchdog has qualified the department's accounts.

The NAO believes that mispayment levels must be reduced to below one per cent before the accounts can be passed.

"The amount of welfare benefit being lost through fraud and error is continuing to run at an estimated £3 billion each year," said NAO chief Sir John Bourne.

"Once again I must point out that parliament intends that this money should go only to those who are properly entitled.

"The challenge which the department faces in reducing the scale of fraud and error to an acceptable level is very large indeed.

"However, it is crucial that as much of the money as possible goes to those who are in real need."

The Conservatives said the government was failing to tackle a serious problem at the heart of the welfare system.

"The report from the National Audit Office shows the enormous scale of overpayments in benefits under this government," said David Willetts.

"With £3 billion lost in benefit payments in 2001/02, the government clearly has no grip on the situation. This is fraud at an unprecedented level

"It is a scandal that after all the rhetoric, no progress is being made in tackling the problem. Meanwhile billions of pounds continue to be wasted."