There should be an immediate investigation into claims that jobseekers were bussed in to London to work as unpaid stewards during the Diamond Jubilee celebrations, Lord Prescott said today.

He said it was "totally unacceptable" that benefit claimants were forced to sleep in the cold under London Bridge in the early hours of Sunday morning, adding that Close Protection UK, which was contracted to provide up to 30 unpaid stewards, had failed to "show a duty of care".

In a letter to Home Secretary Theresa May, Labour's former deputy leader said the allegations raised "serious questions" about using private firms to police the Olympics.

His letter follows claims in the Guardian that Close Protection UK bussed in a group of long-term unemployed to work as unpaid stewards during the River Pageant on Sunday to mark the Queen's Diamond Jubilee.

The newspaper claimed the workers, including another 50 people on apprentice wages, were brought in as part of the Government's Work Programme, where the unemployed must take up placements in order to continue receiving benefits.

It is alleged they were forced to camp overnight under London Bridge before they started work but sources at the Department for Work and Pensions said they were only outside in the cold for two hours after a "mix-up" when the driver of their bus refused to let them sleep on board.

Lord Prescott said a full investigation was now needed.

In his letter to Mrs May, he said: "If the allegations are true, it is totally unacceptable that young unemployed people were bussed in to London from Bristol, Bath and Plymouth and forced to sleep out in the cold overnight before stewarding a major event with no payment.

"I am deeply concerned that a private security firm is not only providing policing on the cheap but failing to show a duty of care to its staff and threatening to withdraw an opportunity to work at the Olympics as a means to coerce them to work unpaid.

"It also raises very serious questions about the suitability of using private security contractors to do frontline policing instead of trained police officers.

"I call on you to immediately investigate this matter and alert the Security Industry Authority to see if CPUK (Close Protection UK) has breached its SIA Approved Contractor Status. I also ask you and (Culture Secretary Jeremy Hunt) urgently review CPUK's contract to provide security during the Olympics.

"It would be completely inappropriate for a company that appears to have such a blatant disregard for the care of its workers to be policing such a prestigious event."