The Work and Pensions Select Committee, chaired by Christian MP Frank Field, called on the Government to apply the limit on the total amount of benefits a person can get only to those who are expected to be looking for work.
It warned that only 18 per cent of those currently affected by the cap have been assessed by the Department of Work and Pensions (DWP) as capable of looking for work, while 82 per cent of households cannot escape it.
In a report on the benefit cap, the committee said: "The Government told Parliament that the cap was meant for people who could work, but were choosing not to.
"But in fact the majority of people who are affected by the cap have been assessed by the DWP as not being required to look for work, usually because they are lone parents with young children or have an illness or disability.
"A policy aimed at people who could work but were choosing not to is now being applied to single mothers with newborn babies and people with serious health conditions, who face significant barriers to finding work. This cannot be what was intended."
The committee said the cap should only apply to claimants who are either claiming Jobseeker's Allowance or claiming Universal Credit and in the "all work-related" activity group.
Mr Field said: "It would be difficult to think of a more cruel cut.
"Benefits are being cut with the aim of driving people into work, but four in five people bearing this cut aren't expected to work.
"What genius in government thought this one up?"
The committee also called on the Government to increase the cap levels in line with inflation and to do more to monitor the impact of it.
A DWP spokesman said: "The benefit cap restores fairness so that it pays to work and still ensures there's a safety net for the most vulnerable.
"We will carefully consider the report's findings and respond in due course.
"People receiving certain disability benefits are already exempt from the cap."
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