Disabled and sick people are having to wait six months or more to find out if they are eligible for benefit, which MPs have attacked as "unacceptable."
The delays were criticised by the Work and Pensions Committee, which called on the Government to take urgent action to clear a backlog of cases.
The MPs also urged the Department for Work and Pensions (DWP) to invoke penalty clauses with assessment providers Atos Healthcare and Capital Business Services.
New claims for Personal Independence Payment (PIP), the replacement for Disability Living Allowance (DLA) as the benefit to help towards the extra costs of disability for people of working age, began in April 2013.
Most people applying for PIP undergo a face-to-face assessment to determine eligibility, which is carried out by the private contractors, but the committee said some claims were taking six months or more to process.
Some of the affected claimants are people with terminal illnesses.
The MPs said the backlog of claims should be cleared and the average time taken to process new cases reduced to the expected 74 days, and seven days for terminally ill people.
Claimants hit by delays were facing stress and uncertainty, said the committee.
Dame Anne Begg (Labour, Aberdeen South), who chairs the committee, said: "Many disabled or sick people face waits of six months or more for a decision on their PIP eligibility. Even those with terminal illnesses are having to wait far longer than was anticipated. This not only leaves people facing financial difficulties whilst they await a decision, but causes severe stress and uncertainty. It is completely unacceptable.
"It is vital that all disabled people, but especially the terminally ill, experience as little delay and stress as possible in making a claim. Basic failures - from appointments being cancelled without notice to unsatisfactory responses to queries about claims - are happening too often. Claimants, and their MPs, have often been unable to get any information about when a decision will finally be made.
"The Minister acknowledged that the service claimants were receiving from Atos and Capita - and in some cases from DWP itself - was not acceptable. Whilst this recognition is welcome, urgent action is also required. DWP should not only consider invoking penalty clauses in contracts, but must look at its own systems to ensure that the current dire situation is resolved.
"By the end of last year decisions had been made in fewer than 20% of new claims submitted since April 2013. It is essential that the backlog is cleared before the limited natural reassessment of existing DLA claims is extended any further."
The committee added that the DWP released a great deal of statistical information about benefits, adding there had been "widespread concern" about some comments from the department.
"The Government is doing a great deal to promote a positive image of disabled people but this risks being undermined if the language used in DWP press releases and ministerial media comment about benefit statistics adopts a tone which feeds into negative views about people on benefits, including disabled people," said the report.
"Government statistics should be used objectively to shed light on policy implementation, not to prop up established views and preconceptions. DWP should set out the specific steps it is taking to ensure that statistics are released in a way which is accurate, and fair to benefit claimants."
Duleep Allirajah, head of policy at Macmillan Cancer Support, said: " Under the old system cancer patients had to wait a maximum of 11 weeks, but many are now waiting over six months. These delays mean that thousands are going without vital financial support at a time when they are most vulnerable - for some, pushing them into poverty.
"The huge backlog of claims still waiting to be processed is appalling. The Government must address these delays in the first instance as a matter of urgency and commit to publishing waiting times on a quarterly basis."
A DWP spokesman said: "PIP is a completely new benefit with a new face-to-face assessment and regular reviews. In some cases this end-to-end claims process is taking longer than the old system of Disability Living Allowance, which relied on a self-assessment form.
"We are working with providers to ensure that all the steps in the process are as smooth as they can be and the benefit is backdated so no-one is left out of pocket.
"Claims for terminally ill people are fast-tracked and Macmillan has acknowledged that improvements in the system have already been made. Latest statistics show over 99% of people with terminal illnesses who have applied have been awarded the benefit, which means over 9,500 terminally ill claimants are now receiving PIP."
Mark Serwotka, general secretary of the Public and Commercial Services union, said: "The long delays faced by disabled people are completely unacceptable and once again we can see the failings of an increasingly privatised social security system.
"Atos and Capita have proved themselves incapable of providing a proper service that treats sick and disabled people with the respect they deserve, and DWP needs to bring this work back in-house and invest in the resources needed to run it effectively. "
Richard Hawkes, chief executive of disability charity Scope said: "It's unacceptable that disabled people are facing long and uncertain delays for this benefit, which is a financial life-line.
"At every turn disabled people have to pay more than other consumers. Basic things, such as travelling to work or cleaning the house, cost more if you are disabled.
"This disability benefit exists to help people meet those extra costs. Under current plans, 600,000 disabled people will lose this financial life-line."
Shadow work and pensions secretary Rachel Reeves said: " Under Iain Duncan Smith's leadership, the Department for Work and Pensions is failing across the board, from the millions wasted on the delayed introduction of Universal Credit to the poor performance of the Work Programme. David Cameron needs to urgently to get a grip of this failing department."