The oversight was discovered during a basic audit, after debt-ridden Greece was pressured by foreign lenders to cut its deficit.
They were caught during the inquiry and the state is reclaiming the money they have illegally taken, Reuters quotes an anonymous Labor Ministry official as saying.
The cuts have been implemented gradually since last September, the official added.
The audit found that some family members continued to receive monthly checks for dead pensioners, and some recipients pretended to be poor in order to receive government assistance.
The 200,000 fraudsters amount to some 2 percent of the Greek population.
The social security system will save up to 800 million euros ($1.06 billion) per year from ending the fraudulent payments, outgoing Labor Minister Giorgos Koutroumanis said Tuesday when speaking to reporters.
Koutroumanis also announced that a new committee will be established to manage pensions and avoid such costly mistakes in the future, Athens-based newspaper Ekathimerini reported.
The news comes after Greece's central-bank governor, George Provopoulos, announced Tuesday the economy would shrink a higher-than-expected 5 percent this year.
Provopolous also warned that Greece risks being ousted from the euro zone if it does not follow through with promised budget cuts.
What is at stake is the choice between an orderly, albeit painstaking, effort to reconstruct the economy within the euro area ... or a disorderly economic and social regression, taking the county decades back, and eventually driving it out of the euro area and the European Union, he said in a speech at the annual meeting of the Bank of Greece.
Provopolous expressed reservations about the new government's commitment to planned austerity measures after elections on May 6.
Greek pensioners, a quarter of the population, have seen a 25 percent reduction in their allowances, while other government cuts have driven the unemployment rate to almost 22 percent, Reuters reported.
Greece's economy will contract by almost 5 percent this year, Provopolous warned, more than the 4.5 percent that the Bank of Greece earlier forecast.
Athens promised its European Union partners and the International Monetary Fund to cut government spending equal to 1.5 percent of its GDP in exchange for a $172 billion bailout in February.
Greece has sought to achieve such targets by tax increases, amounting to about $4.45 billion in 2013, a reduction to the minimum wage, and the suspension of some 30,000 public sector employees.