Russia's use of private military company Wagner in Ukraine has seen the group lower its recruitment standards as it continues to suffer casualties, according to intelligence.
In an update, the MOD said the group was "hiring convicts and formerly blacklisted individuals" and that "very limited training" is being made available to the new recruits.
"This will highly likely impact on the future operational effectiveness of the group and will reduce its value as a prop to the regular Russian forces," the MOD tweeted.
The Twitter thread also outlined Russia's use of Wagner to "reinforce frontline forces and to mitigate manning shortfalls and casualties", with the MOD saying the group was "almost certainly" central to Russia's capture of Popasna and Lysyschansk.
As a result of the group's effectiveness, Yevgeniy Prigozhin, the head of Wagner, was made a Hero of the Russian Federation, the intelligence update said.
Watch: Nearly 8,000 Wagner Group mercenaries deployed by Russia in Ukraine, MPs hear.
"This, at a time when a number of very senior Russian military commanders are being replaced, is likely to exacerbate grievances between the military and Wagner," the MOD said.
"It is also likely to impact negatively on Russian military morale."
It comes after the executive director of the Bellingcat investigative website told MPs nearly 8,000 mercenaries from Wagner Group were deployed to Ukraine, but the group has sustained heavy casualties.
Giving evidence to the Commons Foreign Affairs Committee, Christo Grozev said 3,000 members of the private military company were thought to have been killed on the battlefield.
He also said sources within Wagner told Bellingcat the number of the group's personnel fighting alongside Russian Forces were "much higher" than expected.