Over three years the average payout was more than US$30,000 (£24,000) per person.
Home Office statistics show that the total number of people being detained for immigration offences is growing every years.
The unlawful detentions have led to Britain's immigration policy being accused of leaving a stain on society.
Community worker and activist Pinar Aksu spent time in Dungavel detention center when her family first came to the UK. She told Sputnik that Britain's asylum policy should be redesigned.
"People have been detained for weeks, months and possibly years," she said.
"This money that people are receiving is not going to give them their time back that they spent in detention centers.
"We need to redesign the asylum system because the system we have at the moment is very confusing and is designed to push people out of the country rather than look through their cases in a humane way. The core solution is to have a system that values people," Pinar Aksu told Sputnik.
The people who have received compensation include those that authorities thought had failed to leave the country on time and those who were falsely accused of breaking visa regulations.
It follows a report earlier this year that criticized the overcrowded nature of some of the detention centers, including Harmondsworth near Heathrow Airport.
The inspector's report called the center dirty and rundown with seriously insanitary toilets and showers.
In response to the unlawful detentions, Liberal Democrat leader Tim Farron accused Britain's immigration policy of leaving a "stain on society."
"It is outrageous that the Government is wasting taxpayers' money on huge pay-outs for their mistakes. Locking innocent people up for administrative convenience is a huge stain on our society and this adds insult to injury," he said.
Meanwhile, two LGBT charities have called for an end to the detention of lesbian, gay, bi and transgender asylum seekers.
Stonewall and the UK Lesbian and Gay Immigration Group released a report saying that LGBT people face bullying and harassment in detention which Home Office staff are "ill-equipped" to deal with.
The report also accuses the government of detaining rape and torture victims, which is against the Home Office's own rules.