Monitoring Poverty and Social Exclusion 2009 found that there are now 2.1 million children living in low-income households where at least one parent works.
This is 500,000 more than in 2003/4 and leaves government targets to halve child poverty by 2010 and end it by 2020 in disarray.
The report says the government needs to do more to combat "in-work poverty" if it is serious about meeting its child poverty targets.
Despite the increase in low-income families, the report does note that children’s educational attainment is improving. The proportion of 11-year-olds not meeting basic standards in maths and English has fallen each year in the past decade and the number of 16-year-olds getting less than five GCSEs is at its lowest point for 10 years.
The report also found that unemployment is at its highest level since 1997 and home repossessions are six times 2004’s level.
Julia Unwin, chief executive of the Joseph Rowntree Foundation, said: "Today's report highlights the scale of the challenge the government faces if it is to reduce poverty significantly in the UK."
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