Ministers are being urged to look into reports that unemployed people hired as unpaid stewards for the Diamond Jubilee pageant ended up having to sleep outside and change in the rain.
Some volunteers from the government's work programme scheme had to spend the night under London Bridge and had no access to toilets, the Guardian said.
Ex-deputy prime minister Lord Prescott said the reports were "unbelievable".
The firm in charge of stewarding has apologised to those involved.
Close Protection UK said staff arriving from outside London on Sunday morning - ahead of the pageant on the Thames - should not have been dropped in the capital at 0300 BST with nowhere to stay.
The company, one of those awarded a stewarding contract for the Diamond Jubilee events, said this was a misunderstanding on the part of the coach driver who was two hours ahead of schedule.
The Guardian reported that volunteers bussed in from Bristol, Plymouth and Bath had to spend part of the night under London Bridge, one telling the newspaper that conditions were "freezing" and another saying it was impossible to pitch a tent due to the concrete surface.
They also told the newspaper that they had to change into their clothing - which included a plastic poncho for protection against the rain and high-visibility jacket - in public and had no access to toilets during the 14-hour shift.
Lord Prescott has urged the home secretary Theresa May to launch an urgent inquiry into the allegations.
He tweeted: "This is unbelievable. If true, it is appalling."
The firm said it took on 80 people to act as stewards over the three-day event through the government's apprentice and work programme schemes - which aim to help the long-term jobless back into work.
Of these, 50 people under the age of 25 were paid the government's standard rate for apprentices of £2.60 per hour and the other 30 either accepted the same rate or refused payment because it would adversely affect their benefits.
Work experience is a compulsory part of the NVQ2 qualification in stewarding - which is essential for work at major events such as the Olympics.
Close Protection said the unpaid roles were a trial for paid positions at the 2012 Games, which it also has a contract to supervise.
The company, which is based in Wigan, said it paid for meals for all the Jubilee volunteers, accommodation on the night after the event as well as supplying their clothing, equipment and licences to undertake the work.
The charity Tomorrow's People, which set up some of the placements at Close Protection UK under the work programme, said it did not approve of unpaid work but in this case believed that it was valid work experience.
However, it is seeking further clarification from the stewarding company.
The Department for Work and Pensions said the work programme used organisations such as charities to help get the long-term unemployed back into work and while on such schemes individuals continued to receive their Jobseeker's Allowance.
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