Universal credit, the government's recasting of the welfare benefits system, has had to be reorganised so fundamentally that the government watchdog responsible for grading its implementation has judged that it is now an entirely new project.

In its annual assessment of the implementation of nearly 200 major infrastructure projects, the Major Projects Authority (MPA) has listed universal credit as "reset", the only one to be listed as going back to the drawing board. The scheme has been dogged with IT design faults, leading to successive delays.

Universal credit is the flagship project of Iain Duncan Smith's Department for Work and Pensions (DWP). Ministers started implementing it three years ago, and have been criticised by successive watchdogs for failing to come clean about the problems the DWP has experienced with the technology.

The department said the classification of reset was simply reflecting the changes the DWP has already announced to make the scheme viable, including spreading the programme more slowly than previously planned. But it is the first time the MPA has had to use this classification, and suggests the universal credits scheme has been particularly dogged by problems among big government projects.

Universal credit aims to remove the barriers to the unemployed taking jobs by making work pay through the provision of means-tested support for those in and out of work.

The DWP said the MPA's judgment was out of date because it assessed the project last September, and since then there had been progress implementing the scheme through a limited number of pilots in jobcentres.

Universal credit brings together six benefits in a monthly payment, but problems have meant the DWP has been unable to extend the scheme beyond simple cases, primarily childless, unmarried, unemployed people.

The report says: "The 'reset' category has been applied to the universal credit project. We have undertaken significant work to develop a 'reset plan' to place the rollout of universal credit on a more secure footing, and the 'reset' delivery confidence assessment reflects this new status of the project."

The MPA was set up to bring greater transparency and effectiveness to major investment schemes implemented by civil servants. It rates major projects according to a traffic-light scheme of green, amber and red. Universal credit was previously marked as amber/red, meaning it was in danger of failure.

Francis Maude, the Cabinet Office minister, says in a foreword to the MPA report assessing the overall state of projects: "We have made significant progress. This year, half of the projects with the most significant challenges improved, while our work to develop our people has meant we are relying less on costly consultants."

He added: "But we must not pretend problems don't exist. Instead, we must identify and address them early on before they become an issue. By being open and realistic about the challenges we face, we can find solutions."

The projects include infrastructure, education, IT and government change programmes. The report says: "The total aggregated, budgeted, whole-life costs of these major projects has been estimated at over £353.7bn, mainly in the Ministry of Defence, the Department for Transport, the Department of Energy and Climate Change and the DWP.

"Over the course of the year, 39 projects left the oversight programme due to completion, being redesigned into other projects or, in a few cases, being halted. The report shows that between September 2012 and September 2013 there was an increase in the percentage of projects rated amber/red and a decrease in the percentage rated green. The main reason for this is that 47 new projects joined the scheme this year. Since they are projects in the early stages of planning, we are naturally at this stage less confident in their delivery than in those projects that left the portfolio during the year."

The report goes on: "This time last year, we rated 31 projects red or amber/red. Of these 31 projects, more than half did better this year and only one has got worse."

A DWP spokesman said: "Universal credit is on track. The reset is not new but refers to the shift in the delivery plan and change in management back in early 2013.

"The reality is that universal credit is already making work pay as we roll it out in a careful and controlled way. It's already operating in 10 areas and will start expanding to the rest of the north-west in June.

"Jobseekers in other areas are already benefiting from some of its positive impacts through help from a work coach, more digital facilities in jobcentres, and a written agreement setting out what they will do to find work."

Questions will be asked on why the annual report has been published by Whitehall on Friday, as attention is focused on the local and European elections. The report has been ready for publication for some days, and the timing is likely to be seen as an attempt to bury bad news.

Officials claimed it was just essential to get the report into the public domain, and to overcome resistance from Whitehall civil servants. And Whitehall sources said the government had no choice but to publish the report around now since Whitehall was in purdah during the local election period.

The innovation of the MPA in April 2011 with its traffic-light system is deeply unpopular with some senior civil servants, who resent the interference and publicity.

Its current head, John Manzoni, is known to feel that the focus in the civil service wrongly remains policy-making rather than leadership on big projects. He would like to see a cadre of project managers brought into Whitehall operating on a payment-by-results basis, so a bank of experience is built up in Whitehall.

He also feels senior civil servants need to overcome the cultural fear prevalent in the public sector of conceding that a project is failing or in need of a rethink.

Apart from its annual review the MPA carries out assurance reviews where there is cause for concern and ensures that departments co-operate to take action to address any issues raised.

It also has power to escalate issues of concern to ministers and accounting officers. It can intervene directly where projects are causing concern, providing additional assurance or commercial and operational support. Last year it found eight red, 23 amber/red and 58 amber projects.

A year ago the DWP responded to an amber/red rating by asserting that it was based on out-of-date information. "This rating dates back to September 2012, more than seven months ago. Since then, significant progress has been made in the delivery of universal credit. The pathfinder was successfully launched and we are on course both to expand the pathfinder in July 2013 and start the progressive national rollout of universal credit in October."