Immigration Minister Liam Byrne said it is "too early to tell" if an amnesty for illegals should be ruled out.
Mr Byrne told MPs he has asked officials for a report on the issues surrounding such a move explaining he wanted to see an analysis.
But the Home Office said there were no plans for an illegal immigrant amnesty.
Numbers of illegals are officially estimated at between 310,00 and 570,000 though pressure group Migrationwatch suggests it is nearer 870,000.
Mr Byrne told the Home Affairs Select Committee: "The position I'm in is really needing to understand in more detail than I do at the moment the precise segmentation of people whose positions have not been regularised."
Last month the deputy secretary of the T&G union, Jack Dromey, said it would be "impracticable and immoral" to try to deport half a million illegal immigrants.
Irresponsible?
But Conservative home affairs spokesman David Davis said: "With our borders so badly protected, even speculating about the possibility of an amnesty is highly irresponsible.
"An amnesty could lead to a massive and uncontrolled increase in the numbers coming here."
Migrationwatch chairman Sir Andrew Green said Mr Byrne's comments were "thoroughly irresponsible".
"It is not a change of thinking, it is an absence of thinking. Amnesties are an absurd idea," he added.
"Amnesties do not reduce illegal immigration, they encourage it."
Mr Byrne was asked if IND was "fit for purpose" - an echo of the comments by Home Secretary John Reid who highlighted the challenges facing his department in a previous session with the select committee.
There are reasons for believing that it will take some time but IND is very much within the realm of the fixable," he argued.
He pointed to the success in reaching the "tipping point" where more failed asylum seekers were removed than there were new asylum applications.
New punishments
Mr Byrne also revealed he was looking at whether the introduction of new penalties on illegal workers could be speeded up.
He said he was examining how to accelerate the arrival of parts of the Immigration, Asylum and Nationality Act, passed earlier this year.
So far, the Home Office has only said it is consulting on the penalties before introducing its new points-based immigration system.
The act includes fines of up to Ј2,000 for employers who use illegal workers and a possible two-year jail sentence and unlimited fine for those found to use or exploit illegal workers knowingly.
Mr Byrne said the penalties were "not massive" and he would be interested in seeing analysis of what impact they were going to make.
Corruption fears
Judges have complained to MPs that they do not feel they can make much difference when they expel immigrants because too many are not sent home.
Mr Byrne said a stronger enforcement and removals strategy was needed. The government tried to improve the process by creating the Asylum and Immigration Tribunal, set up to try to ensure that only one appeal is allowed against Home Office removal decisions.
But judges have warned that review in the High Courts have simply become the new second tier of appeals.
And Mr Byrne said there was a potential for a "morass" to develop at the end of the process.
Improving the quality and speed of the decision making process might not solve the problem, he argued.
The minister was also asked about corruption among immigration officials.
Labour MP Shahid Malik said figures released in February showed 703 cases had been referred to the IND's security and anti-corruption unit, and 409 cases were being investigated.
Mr Byrne said it was an "extremely serious issue" and he was unable to say whether the cases were the "tip of the iceberg".
The right culture had to be embedded in the IND and there had to be strong guidance to staff, he said.
(BBC)
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