Government is failing to track why all claimants have dropped off the roll meaning it has no idea how many people are being left penniless, according to Frank Field.
Benefit sanctions are being applied on a "scale unknown since the Second World War" and the fate of at a least one third of those who have been penalised is "anybody's guess", the Work and Pensions Committee chairman said.
Around 1.5 million claimants fall off the welfare roll a year but their whereabouts is a "mystery" and it is unclear how many are left without work or benefit payments, according to Mr Field.
Some may be in jail or have moved abroad while others are people on benefits who have been hit by sanctions and dropped out of the system, according to the research.
The number of sanctions imposed in the 2014/15 financial year was around half a million, the study by Mr Field and Andrew Forsey, head of the MP's parliamentary office, found.
Claimants are hit by sanctions when they fail to comply with welfare conditions imposed by the Government.
The report, which will be published on Monday by think tank Civitas, calls for the Government to carry out an urgent survey to find out what happens to claimants expelled from the welfare rolls who appear not to find work.
It backs plans to trial a yellow card early warning system for claimants facing sanction because they are deemed not to have done enough to find work, and calls for Jobcentre Plus staff to be given powers to issue non-financial sanctions.
The Department for Work and Pensions should test out giving vulnerable claimants a grace period that eases the rules at times when they are facing transition or acute difficulty, the report adds.
Mr Field and Mr Forsey said: "The number of sanctions was halved in the year leading up to the 2015 election, but it still remained at half a million. Sanctions are therefore being applied at a scale unknown since the Second World War, and the operation of sanctions on this scale makes for a most significant change in the social security system as it has existed in the post-war period.
"A number of people - we know not how large a number - are being totally disconnected from both work and welfare, and risk being exposed to destitution.
"Justice calls for a major survey of what happens to the hundreds of thousands of people thrown off the welfare rolls each year through the sanctioning process. It is unacceptable, not only for this government but for its predecessor and those who will follow, to take away benefit from a mass of people each year and not trouble themselves with how this army of people survive.
"For that is what is happening under the Government's sanctions policy. The ability to track the well-being of the whole population is now a part of being a grown up government, let alone a 'One Nation' government."
A Department for Work and Pensions spokesman said: "There is no basis to these claims.
"People leave the benefits system for many reasons, including when they go to work - which is good news.
"It's extremely unlikely anyone would leave the benefit system because of a sanction. The truth is we have record employment and we spend £80 billion supporting millions of people who are unemployed or on low incomes."