Thousands of people claiming disability benefits could miss out on up to three years of backdated payments, despite the Department for Work and Pensions taking responsibility for the error.
Ministers have confirmed they will pay arrears to thousands of Employment and Support Allowance (ESA) claimants back to October 2014, despite mistakes taking place from 2011.
The DWP said a landmark tribunal ruling that month fundamentally changed the benefit, and that legally they cannot pay arrears beyond that point.
Labour MP Frank Field joined campaigners in demanding the Government stops playing Scrooge and backdates claims to when any error first took place.
But the Tories hit back at Mr Field, saying the relevant legislation was brought in when he was a welfare minister.
The errors by the DWP are estimated to have affected 75,000 people and will reportedly cost up to £500 million to put right.
"Why does DWP want to outdo Scrooge at Christmas time?" said Mr Field, chairman of the Work and Pensions select committee.
"Is there no joy in their hearts when they're the ones who made the original mistake?
"I'm sure Parliament is not going to let them hide behind the legal shroud they have created on this."
ESA is the main long-term sickness benefit, paying 2.4 million people between £73.10 and £188 a week.
Work and Pensions Secretary David Gauke said a number of people transferring from older benefits to ESA were incorrectly put on the contributory system rather than the income-based one.
This meant many were not awarded payments they were entitled to, such as the severe disability premium, which is worth £62.45 per week.
Mr Gauke said the errors occurred between 2011 and 2014, after which fresh guidance was put in place.
Philip Connolly, policy manager at Disability Rights UK, said: "The Government's failure to fully backdate benefits owed to people who are too unwell to work is a bitter pill to swallow.
"And it's hypocritical. If this was benefit fraud by claimants, the pursuit by the authorities would be relentless.
"Whether the law allows the Department of Work and Pensions to refuse to pay up or not is irrelevant.
"The vast majority of people who claim Employment and Support Allowance are on a very tight budget. The Government should do the right thing - not play Scrooge, and pay back the money disabled people should have got in the first place."
The case that prompted the tribunal judgment in question is not particularly relevant to these errors identified by DWP.
The case, LH vs SSWP, was a row over backdating payments to a woman who first began claiming ESA in 2009, meaning she was not affected by these circumstances.
However, a key finding from the tribunal ruling delivered on 21 October 2014 was that ESA was one benefit, rather than two separate systems of either contributory or income-based ESA.
A DWP spokesman said: "We are currently reviewing the historical benefit payments of those claimants who may have been affected and are already contacting people to make repayments.
"The law says that arrears can only be paid back to the date that a tribunal establishes a new legal principle and in October 2014 a tribunal established a new legal principle about ESA."