John Reid is to launch a major shake-up of immigration policy as part of a wider Home Office revamp.

Amongst other measures, the home secretary is considering plans to disqualify directors whose companies give work to the estimated 570,000 foreigners illegally in the UK.

Under a 'two strikes and you're out' rule, those caught breaching the law twice would be struck off, according to Sunday newspapers.

Reid will this week detail his reform plan for the beleaguered department, parts of which he described as "not fit for purpose" after taking over from Charles Clarke in May.

The Sunday Telegraph suggested that the Immigration and Nationality Directorate could become an arm's-length agency.

The moves follow a catalogue of controversies at the IND. its director of enforcement and removals caused uproar recently when he told MPs he had no idea how many illegal immigrants were in the country.

That was followed by the embarrassing disclosure that five illegal immigrants were employed as cleaners at an immigration enforcement office.

Reports said that the rules for company directors would still apply if illicit entrants were employed through sub-contractors.

But business leaders warned against adopting headline grabbing initiatives without thinking them through properly.

In another major initiative, Reid also wants to give police the power to impose control orders on gangsters in a bid to thwart serious organised crime.

The Sunday Times said the Serious Organised Crime Agency would be allowed to apply to the High Court for civil orders to place drug traffickers and people smugglers under virtual house arrest.

The orders, being dubbed 'super-asbos', are designed to tackle people who are suspected of involvement in serious crime but on whom there is not enough evidence to prosecute.

The Home Office added later that reports about proposals on immigration were "highly speculative".

A spokesman said: "The Home Office will this week be publishing plans to tackle organised crime, to reform the Home Office and to rebalance the criminal justice system.

"At a later stage we will be publishing proposals to reform immigration policy, but these issues are currently under discussion.

"No decisions have been taken. Such stories are therefore highly speculative."

Home Office minister Tony McNulty insisted that no decisions had been made about the disqualification plans.

"I am not sure what you disqualify them from, but the point is that we are going through a complete review of the immigration services," he told Sky News' Sunday Live.

McNulty said there were already "far stronger" civil powers for those who employed illegal immigrants.

"This specific issue is one for discussion, like a whole range of other issues, but to say it's a decision would be highly, highly speculative," he added.