© GettyGovernment rules say benefit claimants should not lose housing benefit if they are sanctioned
The "appalling situation" is condemned by a Commons committee which has told the Department for Work and Pensions to investigate the blunder urgently.
Government rules say benefit claimants who are sanctioned can be docked jobseeker's allowance (JSA) and employment and support allowance (ESA) - but not housing benefit, which they may need to keep their home.
In evidence to the Public Accounts Committee (PAC), Sir Robert Devereux, the DWP's permanent secretary, said: "The sanction is applied to the JSA and not to the housing benefit."
But a survey by the housing charity Crisis found that a staggering one-third of people who were claiming housing benefit lost their money when they were given a sanction.
Meg Hillier, the PAC's Labour chair, said: "Suspending people's benefit payments can lead them into debt, rent arrears and homelessness, which can undermine their efforts to find work.
"A third of people surveyed by the charity Crisis who were claiming housing benefit had this stopped in error because of a sanction - an appalling situation to be faced with."
The criticism comes in a hard-hitting report which piles fresh pressure on the DWP over the use of sanctions which, typically, docks benefits for four weeks.
That can mean a loss of £300 for a claimant over the age of 25. A total of 400,000 sanctions were imposed in 2015.
The PAC's report attacks the DWP for:
* An "unacceptable" postcode lottery in the use of sanctions, which means claimants are treated differently depending on where they live.
* Failing to find out whether vulnerable claimants are being excused from having to meet benefit conditions, as they should be.
* Poor data, which means the department lacks evidence that the use of sanctions makes it more likely that claimants will find work.
* Failing to introduce warnings - rather than immediate loss of benefits - for "first offences", as recommended by an independent reviewer back in 2014.
Ms Hillier added: "Benefit sanctions have been used as a blunt instrument by Government.
"Sanctions and exemptions are being applied inconsistently, with little understanding of why. Some people who receive sanctions stop claiming without finding work, adding to pressures on other services.
"Suspending people's benefit payments can lead them into debt, rent arrears and homelessness, which can undermine their efforts to find work."
More than a million unemployed benefits claimants have to meet certain conditions, such as showing they are looking for work, to receive their payments.
The PAC said it agreed that sanctions "encourage some people into work" but questioned an increase in severity in recent years.
The Independent revealed a sharp spike in the number of sanctions applied to disabled people receiving employment and support allowance (ESA) late last year.
Comment: Attempts to correct the UK's privatized, out-sourced and failing economy has led to a pathological attack on the poorest and most vulnerable in society. There is a clear, ever-growing divide between those who are benefiting from the current set-up and those whose wages are stagnating, opportunities are diminishing, with a huge portion of the population living in poverty.
See also:
- Britons living in poverty more than doubled in past 30 years, as wealth gap soared
- Benefits and child credits squeeze pushes 200,000 children into poverty
- 1.6 million UK pensioners living in poverty
- Inequality reaches inhuman proportions as UK's richest pathocrats own one third of country's wealth
- UK most unequal country in the West
And, at the weekend, senior Labour MP Frank Field criticised the failure to introduce the "yellow card" warning system - sending desperate jobless and disabled people to food banks.
99% paralysis? Look mate, if you can wiggle your little finger, you're fit for work.