Criminals have stolen the identities of 1,500 Department for Work and Pensions (DWP) staff and used them to make fraudulent claims on the government's tax credits Web site.
HM Revenue and Customs (HMRC) has been forced to close the 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 spokeswoman 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 spokeswoman 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.