HM Revenue and Customs (HMRC) has been forced to close its tax credit e-portal while it develops new checks to ensure the system is secure.
The fraud came to light during compliance checks by HMRC and a criminal investigation is now underway into how the 1,500 DWP staff had their identities stolen.
A spokesperson for the DWP said "all options" are being investigated when asked if insiders were involved in the scam.
The DWP and HMRC said they are carrying out an in-depth investigation into how the fraud happened and to identify and correct the records affected.
A spokesperson for HMRC said: "We take fraud very seriously and we have taken swift action. We are looking to reinstate the e-portal as soon as possible."
HMRC is also setting up a helpline for any DWP staff who think they might be victims of the tax credit fraud.
Silicon.com's Will Sturgeon reported from London. For more coverage from Silicon.com, click here.
