The UK Border Agency is to be scrapped and brought directly under ministers' control for the first time in five years to end its "closed, secretive and defensive culture".
The "troubled" agency will be split into an immigration and visa service and an immigration law enforcement organisation, Home Secretary Theresa May said.
After a raft of damning inspections and reports, the Agency will return to Home Office supervision rather than running at arm's length under the control of a chief executive.
But in a leaked memo, the head of the Home Office, permanent secretary Mark Sedwill, told staff they will "still be doing the same job" despite new reforms.
The opposition said "splitting the organisation again and again" is not enough, but Mrs May said the Government is "getting to grips" with the system it had inherited.
"The Agency has been a troubled organisation since it was formed in 2008 and its performance is not good enough," the Home Secretary said.
The move comes after a group of MPs warned it would take the UKBA 24 years to clear a backlog of asylum and immigration cases the size of Iceland's population.
The Home Affairs Select committee launched a scathing attack on former UKBA chief Lin Homer, now the head of Britain's tax office, for her "catastrophic leadership failure".
Mrs May also ordered an overhaul of the Agency's "inadequate" IT systems and brought forward plans for an Immigration Bill to make it easier to remove illegal immigrants.
Shadow home secretary Yvette Cooper said: "The Home Secretary has already split the UKBA once, just 12 months ago, and the performance of the Agency has got worse since, with growing delays in dealing with asylum cases, visas and foreign criminals. We have called for action to improve enforcement and effectiveness of the system, but simply cutting and splitting the organisation again and again aren't enough."