There are more than 1,200 undercover police officers operating in 39 units across England and Wales the police watchdog has revealed for the first time, as it issued a damning criticism of senior officers responsible for the tactic.

The inspectors said that the “generally poor knowledge and lack of expertise of senior officers” was unacceptable and called for a root-and-branch reform of the secretive national group that oversees the deployment of undercover officers.

Her Majesty’s Inspectorate of Constabulary (HMIC) warned that the shortcomings of the senior officers threatened to undermine a technique that it said was a valuable way of catching criminals.

They also found that five police forces had failed to adapt to “the fast growing online threat” from criminals and were not conducting any undercover investigations on the internet.

The watchdog broke new ground by disclosing the breadth of modern undercover work, revealing that there were 3,466 undercover operations in England and Wales between October 2009 and September 2013 and that at the most recent count, 1,229 officers in 39 units are trained as undercover officers.

Inspectors refused to detail individual operations, but said the undercover officers had been targeted at small-time criminals selling drugs or stolen goods on the street through to paedophiles and terrorists.

The watchdog has refused to say how many undercover officers are being used to infiltrate political groups.

The HMIC report into the current control of undercover officers was commissioned by the home secretary, Theresa May, following revelations in the Guardian that undercover officers had spied on the family of murdered teenager, Stephen Lawrence.

Stephen Otter, the HMIC inspector who led the evaluation of the covert operations, acknowledged that a series of disclosures – including how undercover officers had formed sexual relationships with women they were spying on and gave evidence in court using their fake identities – had caused “a growing unease that the tactic is being wrongly used, badly supervised, and ineffectively controlled”.

Otter and his team put forward 49 recommendations to improve the “policies, systems, training and leadership of undercover operations which if implemented should address the unacceptable inconsistencies and shortcomings that we have found”.

He said that the national undercover working group – the body of senior officers in charge of undercover operations – was not run well “and that it has not done so for some time”.

Commander Richard Martin, the chair of the working group, stepped aside from his post during the inspection but said it was “his decision and not based on the findings of the HMIC report.”

Otter also said it was “totally unacceptable” that many senior officers who were responsible for approving undercover operations were not trained properly or did not have experience in covert work.

Otter said: “We were concerned by a generally poor level of knowledge and lack of expertise of those senior officers who authorise the use of undercover officers.” He added that there was an “unacceptable variation in the quality of the written authorisations – often with insufficient detail provided”.

The working group found that in one instance, three out of the four courses which had been organised to teach authorising officers had to be cancelled as the numbers of chief officers signing up to attend was so low.

Ministers had promised to tighten up the control of covert operations after revelations about the conduct of undercover officers – such as Mark Kennedy who infiltrated environmental groups for seven years – began to emerge in 2011.

Otter also criticised senior officers for ignoring a previous, unpublished high-level review of undercover operations that had made 55 recommendations for improvements two years ago. One of the recommendations was to ensure that undercover officers should have adequate psychological support. The officer with the longest track record in covert work was said to have been deployed in a variety of operations over 20 years and has since retired.

Deputy Chief Constable Jon Boutcher, who is currently responsible for undercover policing, said: “Unacceptable behaviour by a number of undercover officers in the past has been brought to light and is being investigated.

“We have learned many lessons from these cases. We are disappointed that the report does not acknowledge many of the positive changes that are already being delivered in undercover policing.”