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It admitted 10,000 passports were wrongly given in the past year, but said plans to interview applicants would combat such fraud.
One of the men was convicted of a bombing in Morocco, and the other of planning a major attack in the UK.
The Conservatives called the admission "shocking".
The figures were revealed as the Identity and Passport Service gave details of plans for interviews for passports at a network of new offices.
Face-to-face interviews for adults applying for a passBarot, from London, pleaded guilty to conspiracy to murder at Woolwich Crown Court in December and was sentenced to life with a recommendation that he serve 40 years.
He had seven passports in his true identity and two further passports in fraudulent identities.