Dubbed the “Spy in the Dashboard” and “the Informer” the chip will automatically report a wide range of offences including speeding, road tax evasion and illegal parking. The first you will know about it is when a summons or a fine lands on your doormat.

The plan, which is being devised by the government, police and other enforcement agencies, would see all private cars monitored by roadside sensors wherever they travelled.

Police working on the “car-tagging” scheme say it would also help to slash car theft and even drug smuggling.

The “Big Brother” scheme, outlined in documents shown to The Sunday Times and separate from the various congestion charging schemes being tested, has outraged civil liberties groups who claim the electronic vehicle identification (EVI) programme is draconian and an infringement of human rights. Even those less inclined to worry about Big Brother are likely to take offence. Tony Blackburn, the radio DJ and car buff, said: “What are they going to do next? Start putting chips in people to make sure we are eating properly?” The Department for Transport (DfT) is co-ordinating the project, the main impetus for which appears to have come from the police and the Driver and Vehicle Licensing Agency.

The first part of an initial feasibility study, an 85-page document drafted by the Association of Chief Police Officers, is already complete and lists 47 possible applications for EVI.

Written by Superintendent Jim Hammond, head of Sussex traffic police, it acknowledges “Big Brother concerns” but sets out the benefits. Stolen cars could quickly be traced and uninsured drivers would automatically be identified.

It also notes that cars driven by terrorist suspects or drug smugglers could be monitored even in Europe if, as officials in Brussels envisage, EVI is introduced across the European Union.

The DfT has hired management consultants to co-ordinate the development of the system, which it is thought could become operational by 2007.

New vehicles could have identification chips, containing unique driver details, embedded in their chassis, while older vehicles could have “tagged” numberplates installed when they had an MoT test.

The existing network of roadside sensors, set up by traffic-monitoring companies and the Highways Agency, would require minimal modification to be used for EVI tracking.

The government is likely to face opposition from motoring groups. “We need to have an open discussion about what this technology is being used for, who is being tracked and for what purpose, and what could be the hidden agenda,” said Bert Morris, deputy director of the AA Motoring Trust.

Al Clarke, a spokesman for the Society of Motor Manufacturers and Traders, said: “It is a case of whether society wants to accept it. We support speed cameras as a means of deterrence but not installing a fruit machine for the Inland Revenue or Customs in every car.”

The DfT confirmed that EVI was being considered.

Liberty, the civil rights organisation, said: “This could turn every driver into a potential suspect.” It warned that motorists’ details held on a central computer could form the basis of a “stalkers’ charter” if accessed by hackers.

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