The Public Services Card will remain in use, with the Government saying it would be inappropriate and potentially unlawful to withdraw or modify it.
The Minister for Finance, Paschal Donohoe, and Minister for Social Protection Regina Doherty issued a statement this evening, along with the publication of the full report by the Data Protection Commissioner.
Commissioner Helen Dixon said in her report that it was illegal to retain the data of the three million people who hold a card.
She also found it was unlawful for the card to be demanded for access to public services other than welfare benefits.
But this evening, Minister Doherty said the Government had strong legal advice that the existing legislation provided a "robust legal basis" for her department to issue the cards for use by a number of bodies across the public sector.
In the statement the ministers said: "It is intended, in line with decisions of successive governments dating back to 1998, to continue to operate the PSC and the SAFE 2 identity authentication process on which it is based.
"It would be inappropriate, and potentially unlawful, to withdraw or modify the use of the Public Services Card or the data processes that underpin it."
The ministers said careful consideration was given to the report along with advice from the Attorney General.
Read more: What is the Public Services Card?
The ministers also said the Department of Employment Affairs and Social Protection and Department of Public Expenditure and Reform had offered to meet the Data Protection Commissioner to clarify a number of matters of concern arising from the report, but the offer was not taken up.
In a statement, the Data Protection Commission said: "We welcome the publication of the Report. As previously stated the process of preparation of the enforcement notice is now underway."
During Leaders' Questions in the Dáil this afternoon, Taoiseach Leo Varadkar said the Government still had confidence in Ms Dixon, despite disagreeing with the commissioner's findings.
But he said the Government would begin a legal challenge once an enforcement order was received from the commissioner.
The Public Services Card was introduced seven years ago as a tool to monitor social welfare claims, but widened to include other areas like passport applications and college grants.
The commissioner began investigating the legality of the PSC and submitted a report to the Government during the summer.
Ms Dixon said the report does not comment on the actual Government policy of introducing an identity card but makes specific findings over compelling exclusive use of the card to avail of certain State services.
The report "identifies that there are significant gaps in the purported legal basis under data protection law for the processing of personal data by DEASP in connection with the PSC".
"A particularly significant finding of this report is that there is no legal basis under the Acts for DEASP to process personal data for the purposes of identity authentication of persons conducting transactions with public bodies other than DEASP. However the DPC has found that there is a legal basis under the Acts for DEASP to process the personal data of people who are claiming benefits from DEASP."
The Data Protection Commissioner also found that the "indefinite, blanket retention" of certain documentation and information collected during the SAFE registration process contravenes the principle that personal data shall not be kept for longer than is necessary.
In the report, the commissioner said "there is no single, standalone piece of legislation underpinning the Public Services Card".
Instead, it said there are multiple pieces of primary legislation and statutory instruments setting out laws governing aspects of the card.
Ms Doherty has said she had not addressed any of the eight instructions as outlined in the report as the Government does not agree with them.
Speaking on RTÉ's Drivetime programme, the minister said a letter to that effect had been sent to the commissioner and that a meeting had been requested on a number of occasions by the Government.
She said they are currently awaiting an enforcement order from the commissioner and that she cannot say how the Government would handle that until the order has been received.