Home Secretary Theresa May told MPs that the dramatic shake-up would create a new stand-alone UK Border Force.
The overhaul came as a report by an independent watchdog exposed the shocking scale of the borders crisis.
The 84-page report by John Vine, independent chief inspector of the UKBA, found:
UP to 500,000 Europeans arriving by Eurostar have not been checked against a watchlist of suspected terrorists and criminals since 2007;
CHECKS on secure ID fingerprints were axed 482 TIMES from June 2010 to November 2011;
MACHINES to check biometric chips on passports were turned off 14,812 TIMES from January to June 2011; and BIOMETRIC chips on European passports have not been checked AT ALL in Portsmouth since August 2010.
The report also revealed an "unlawful" decision to let in students from some countries without proper clearance.
Mrs May insisted the problems which led to the resignation of UKBA chief Brodie Clark last year dated back to the Labour Government.
She told MPs that decisions to suspend checks on foreigners were done without her permission.
But Labour accused her of failing to get a grip of the chaos.
Mr Vine's report blasted "poor communication, poor managerial oversight and a lack of clarity about responsibilities".
It added: "Communications between the Agency and Ministers, and between senior managers and staff, was poor."
The language used in ministerial instructions "was not clear and as a result was open to misinterpretation".
This led to confusion among staff about whether checks could be suspended.
Immigration Minister Damian Green appeared to approve plans to suspend fingerprint checks in January 2011.
It was only last May four months later that Ministers made clear these checks should NOT be ditched.
In a statement to MPs, Mrs May said: "UKBA has been a troubled organisation since it was founded in 2008.
"From foreign prisoners to the asylum backlog to the removal of illegal immigrants, it has reacted to problems instead of managing its responsibilities."
Shadow Home Secretary Yvette Cooper told Mrs May: "It is time for you to stop hiding and to take responsibility for things that have happened on your watch."

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