Undercover police officers working for Britain's largest force used the identities of dead children and issued fake passports in their names, it was reported.
Over three decades generations of officers went through national birth and death records in search of suitable matches, the newspaper said.
The creation of aliases resulted in officers being issued with official documents such as driving licences and national insurance numbers.
Last night, Scotland Yard said the practice was not "currently" authorised.
It also announced an investigation into "past arrangements for undercover identities used by SDS (Special Demonstration Squad) officers".