The border force, part of the UK Border Agency (UKBA), needs a “whole new management culture” and will be split from the UKBA from March, Mrs May said.
She added that Wiltshire Police Chief Constable Brian Moore will be appointed as the new head of the border force.
Mrs May said the report found security checks were suspended without permission, millions of pounds were spent on technology which went unused and briefings were inaccurate.
John Vine, the independent chief inspector of the UKBA, launched his investigation after it emerged the UK’s border checks were being relaxed at ports and airports without ministerial approval.
Mr Clark admitted using guidance designed for health and safety emergencies to suspend fingerprint checks at the UK’s ports, actions which had no ministerial authorisation, but accused Mrs May of blaming him for “political convenience”.
He insisted he was “no rogue officer” and launched a constructive dismissal case in which he could net £135,000.