The device, which holds computer files, was discovered in a second-hand car which had been used as a taxi.

As reported in yesterday's YEP, the stick contained the names, addresses, dates of birth and phone numbers of about 5,000 children.

It also recorded their ethnicity, whether their parents claimed benefits and information about child protection.

None of the data had been protected by a password or encrypted to stop it being read if found. It is thought to have been dropped by a Leeds City Council worker at least a month earlier and though the council had been told of the loss, managers were told there was no sensitive information on the stick.

Now council bosses have sent a letter apologising to parents about the incident.

Sally Threlfall, acting chief officer for Early Years and Integrated Youth Support Service, says in the letter: "We made every effort to locate the missing data stick, but regrettably could not immediately locate it.

"It has, thankfully, now been returned safely to us having been found by a member of the public."

She adds that data from electronic registers, collected to help plan services, should not have been on the stick as this breached procedures on protecting information.

An independent inquiry has been launched.

The letter adds: "I apologise for any concerns this issue may give you."

A council spokesman said the letter had been issued to all Children's Centre managers in Leeds for them to distribute to parents. A dad-of-three from east Leeds found the memory stick as he cleaned his car, which had been used by its previous owner as a taxi.

The finderwas shocked to find the confidential list of children – including his own daughter's details.

After discovering what was on the stick, he handed it to West Yorkshire Police who returned it to the council.

Leeds East MP George Mudie said he was "horrified" and called for a national review of the security of computerised records.