The review follows the Government’s acceptance of a ruling against a policy that excluded people with mental health conditions from claiming a higher level of personal independence payment (PIP).
Ministers previously said it could see 220,000 PIP claimants awarded higher payments.
“This will be a complex exercise and of considerable scale, as we will be reconsidering approximately 1.6 million claims,” disabilities minister Sarah Newton said.
Government regulations introduced in March prevented the award of a higher PIP mobility rate if someone was unable to take a familiar journey on their own unless it was “for reasons other than psychological distress”.
The rules, which overruled the decision of an independent 2016 tribunal, meant people incapacitated because of a mental health condition would not be able to receive higher rates of support.
The judgment made in December ruled the policy “blatantly discriminatory” against people with mental health conditions.
Ministers at the time said the decision would affect 164,000 people’s benefits and would cost £3.7bn by 2022.
Work and Pensions Secretary Esther McVey confirmed earlier this month that she would not appeal the verdict but would implement it with payments backdated to the original 2016 tribunal.
Philip Connolly, policy manager at Disability Rights UK, welcomed the announcement.
“This review highlights the ongoing and persistent failures of the assessment process, which is badly designed and implemented,” he said.
“Huge amounts of taxpayers’ money is being wasted on poor quality assessments which deny disabled people benefits that they qualify for.
“We hope this doesn’t mean that some disabled people are going to have to attend yet more assessments.”
It is currently unclear what the timetable for the review will be.
Shadow work and pensions secretary Debbie Abrahams said: “The disabilities minister has refused to publish a timetable of how many months or even years it will take for this ‘complex exercise’ to be completed.
“The Government was wrong to cut PIP benefits in the first place, wrong to bring in the PIP regulations last year and it was wrong to repeatedly ignore the views of the courts.”