The troubled imaging system was originally introduced to allow paper free processing of applications, but instead has produced a backlog of 200,000 cases since its installation in 1998.
Officials say the Immigration department has been forced to rely on an "interim solution" system, and had to recruit an extra 600 caseworkers, just to clear the build up of applications. While Home Secretary Jack Straw admitted the system would never become "fully operational", the department insisted its current contract with Siemens would run on as planned until 2003, although certain issues were "under discussion".
A spokesman for the German computer giant defended its interim solution and said the system had enabled 110,000 decisions last year.
Home Office minister Barbara Roche blamed the previous government for the difficulties but would not confirm reports that cancellation of the project could cost taxpayers £80m.
However, the Tories have hit back and accused the government of "failure and deception" over the whole asylum issue. Shadow home secretary, Ann Widdecombe, said: "They gave the system the least possible chance by changing all the circumstances and putting a huge strain on it before they even started."