Nearly 50,000 migrants have fraudulently obtained English language certificates and the figure is likely to rise, ministers have admitted.
Immigration Minister James Brokenshire told the House of Commons an investigation into the European subsidiary of an American firm called Educational Testing Services (ETS) found more than 29,000 invalid test results and more than 19,000 questionable results.
Facilitated by organised criminals, the "systematic cheating" typically involved invigilators supplying or reading out answers to whole rooms of gangs of imposters being allowed to step into the exam candidates' places to sit the test, Mr Brokenshire said.
A criminal investigation has been launched into the role of ETS Global Ltd, he added.
In addition, Mr Brokenshire said UK Visas and Immigration enforcement officers had uncovered evidence of "serious concern" when looking at colleges and universities involved.
As as result, Glyndwr University, which has campuses at Wrexham, Northop and St Asaph in north-east Wales, has had its highly-trusted sponsor status suspended, that is, its right to sponsor foreign students, while 57 private further education colleges have also had their licences for admitting foreign students suspended.
A further two universities - the University of Bedfordshire and University of West London - are no longer allowed to sponsor new students pending further investigations, which will decide whether they too should be suspended.
Students sponsored by Glyndwr so far identified with invalid language test results from ETS stands at more than 230, rising to more than 350 when questionable results are taken into account.
Immigration enforcement officers have started work to identify migrants who are in the country illegally as a result of the falsified language tests so they can be removed, Mr Brokenshire said.
Her Majesty's Revenue and Customs (HMRC) is also helping the investigation by scrutinising pay and tax records.
Work undertaken by HMRC so far has identified a number of overseas university students earning more than £20,000 a year despite the rule that they must not work more than 20 hours per week during term time.
Overseas students at privately funded further education colleges are not allowed to work at all, yet one college - the London School of Business and Finance - has 290 foreign students who worked and paid tax last year, the minister added.
Enforcement officers also identified people allegedly studying in London while their home addresses were registered as restaurants as far away as Ipswich and Chichester.
Mr Brokenshire said much of the "worst abuse" is taking place at London sub-campuses of universities based in other parts of the country.
As a result, the Quality Assurance Agency for Higher Education will examine London campuses to see whether further action should be taken against their parent universities.
He said: "We have reduced the level of immigration to Britain in part by cutting out abuse in the student visa system.
"But we have always said we must remain vigilant against abuse.
"The steps I have outlined today shows we will not hesitate to take firm action against those - students, colleges and universities - who do not abide by their legal responsibilities and resolutely pursue organised criminality to bring those responsible to justice."
In February, the Home Office suspended English language tests run by ETS after the BBC's Panorama programme uncovered fraud in the student visa system.
Secret filming of government-approved exams needed for a visa exposed candidates having tests faked for them.
Shadow immigration minister David Hanson said: " This new crisis is yet another astounding failure on Theresa May's watch. For over four years in office she did nothing while at least nearly 50,000 people cheated on tests to stay in the country.
"Indeed this only came to light thanks to a BBC programme.
"People will be outraged that genuine students who can add to our economy are being turned away while bogus students prosper under this Government.
"Their response today did not even tell the House if the minister knows what has happened to these students - so now it's just more of the same from a Home Secretary who just can't get a grip on immigration and keep our borders safe."