Details of the new law were revealed just days ahead of the latest immigration figures.
The new offence of illegal working allows wages to be seized as proceeds of crime, while those caught face time behind bars and an unlimited fine.
Certain businesses, including pubs, takeaways and corner shops, will have their licence to operate withdrawn if caught employing illegal immigrants – and government officials are considering whether to extend the power to include cab drivers and operators too.
Those charged with knowingly employing illegal workers will also face a bigger potential jail sentence, with the maximum raised from two to five years.
Meanwhile, banks will be forced to check current accounts against migrant databases, and private landlords who fail to remove illegal immigrants could face jail themselves.
Alp Mehmet, of Migration Watch UK, which campaigns for tighter immigration restrictions, welcomed the changes.