Around 5% of UK motorists have registration plates that are invisible to police cameras, according to Transport Minister Stephen Hammond.
Hammond told Parliament that the "undetectable" licence plates had been put into circulation due to a production technique used by one of the UK's top factories.
The method was discontinued as soon as it was known that automatic number plate recognition (ANPR) cameras could not register them, Mr Hammond said.
The hi-tech cameras are used to automatically capture licence plate details and can aid police in finding and prosecuting drivers without tax or the correct insurance.
However, the Department for Transport estimates that as many as one in 20 cars could be carrying one of the defective plates, which cannot be picked up by ANPR cameras.
The problem was discussed in the Commons by Opposition MP Steve McCabe, who said that the car registration system needs to be improved.
The Birmingham Selly Oak MP said: "Hills, one of the leading UK number plate suppliers has produced millions of plates that cannot be read by many of our ANPR cameras.
"It seems likely that other suppliers are producing similarly deficient plates. Far from building on the technological lead which developments in ANPR should give the UK, we seem to be concentrating on providing comparatively expensive number plates which are of little value in terms of security or assistance to law enforcement."