Bogus social housing tenants who sublet their properties for profit could face being jailed for two years under plans set out in the Commons.
MPs heard up to 150,000 homes provided by councils or housing associations could be sublet at market rents, with the tenants benefiting by thousands of pounds.
Tory MP Richard Harrington said new laws were needed to tackle the problem, which was denying the genuinely deserving from their chance at getting a council house.
His Prevention of Social Housing Fraud Bill would make it a criminal offence to sublet a social property without permission.
Housing associations and other providers would also be able to recover the profits made by the tenant in illegally renting out the property.
“I think the criminalisation of this fraud is long overdue and it is something that many housing associations have called on for some time,”
Mr Harrington (Watford) said.
“It is an outrage that people, estimates of the numbers are up to 150,000 social tenancies - 50,000 being the most conservative, 150,000 being the National Audit Office figure - are illegally subletting properties.
“Typically this is somebody who qualifies for a social tenancy, because they have the necessary points in the scoring system, sign a contract with a social housing provider and then illegally sublet it to a tenant who, in many cases, is paying a market rent for that property, and then either pocketing the difference between either what they are paying themselves or what is being paid as part of their housing benefit.
“This is not simply taking advantage financially of the situation it is also meaning that a family that is on a waiting list and would be entitled to that property is not able to occupy it.”
Under the Bill, tenants who sublet a property without permission would face a fine or up to two years in prison.
Mr Harrington said: “The Bill aims to bring about a fairer system and rectify this anomaly whereby the incentive to cheat is so much greater than the risk of detection and with the eventual penalty that the law up to now incurs.”
“I feel it will free up thousands of properties that could instead be given to hard working individuals and families that play by the rules and that deserve this social housing.”
Tory Caroline Nokes (Romsey and Southampton North) said it was a valuable piece of legislation which would ensure that those needing accommodation provided either by housing associations or local authorities, would be given greater access to the available housing stock.
Illegal subletting of social housing, she added, “distorts the supply of very limited and very valuable housing stock, prevents those who most need social housing from securing it and of course rewards and motivates fraud”.
Shadow Communities and Local Government Minister Chris Williamson said making an explicit criminal offence would be “helpful” in assisting local authorities to deal with the issue, adding that there was cross-party support for the Bill.